BY LISA SCONTRAS
Have you had to dip into a portion of or all of your savings? Or simply haven’t been able to accumulate any savings? No emergency fund whatsoever? You are not alone. Twenty-five percent of Americans have little or no emergency cash reserves. Perhaps you have some cash saved, but worry that it’s not enough?
When it comes to establishing a rainy day fund, many homebuyers and homeowners are banking on their home’s equity for some additional peace of mind. Consider applying for a home equity line of credit at the same time you apply for a first mortgage or if you are refinancing to get a lower rate. Planning ahead and establishing an equity-based line of credit now will prepare you for later. Thinking ahead has several advantages.
For some, it is simply a matter of earmarking funds for an emergency. In a jittery economy, financial experts recommend you have enough savings to get you through several months without income from a job.
“For many, a Home Equity FirstLine from First Hawaiian Bank equates simply to having funds available that can be drawn on as needed simply by writing a check and can provide people with an extra level of security, knowing that the money is there if they ever need it,” says Joy McLaughlin, senior vice president of the residential real estate division at First Hawaiian Bank.
For most people who are either buying a home or refinancing to get a better mortgage interest rate, planning ahead and filling out one application instead of two is more convenient. It’s the smart and easy thing to do.
“It’s like killing two birds by applying only once and obtaining two loans,” McLaughlin says. “We have their financials and won’t have to ask for it all again.”
Pay for only one appraisal. Apply once, pay once for two loans.
LOWER INTEREST RATE FOR JUMBO-SIZED PURCHASES
Looking to borrow $625,500 or more? Manage your mortgage by breaking it down into two loans – a conforming first mortgage and an equity line – instead of one non-conforming loan, as a possible way to get around paying Jumbo loan mortgage interest rates.
OFFSET MORTGAGE INSURANCE
Depending on the amount of equity in the property, taking out an equity line of credit may help a borrower pay the mortgage insurance. In fact, it may also be possible to lower the loan-to-value of the first mortgage, and avoid mortgage insurance altogether. Your personal banker at First Hawaiian Bank can walk you through these options.
SET ASIDE MONEY FOR REMODELING OR FUTURE EXPENSES
If you know that your kitchen is going to need remodeling down the road or that college tuition payment is looming, a home equity line of credit may be a financially savvy way to set that money aside. Some customers establish an equity line to provide cash for future real estate purchases, just in case.
“It is different from cash-out refinancing, where you get all the money you need at the time you close,” says McLaughlin. “If you opt for an equity line, you won’t make payments until you draw the funds. This is helps in circumstances where you will be taking money slowly over time, like a home improvement situation or any large purchase or investment that may come up at some point during the life of the line.”
Need some help to make sense of what’s best for you? First Hawaiian Bank makes it easy to sort through all the options available by assigning you a personal banker who will help you decide which type of product makes the most sense for your particular circumstances. They will walk you through each scenario to see how much you can save and most importantly, your personal banker at First Hawaiian Bank will help you to decide if the home equity line of credit works for you.
“Like with all loan products, compare,” says McLaughlin. “Some lines have lock features, some don’t. Some have fixed rates, some don’t. Some automatically roll into a loan thereby losing your ability to draw any more funds.
“It is important to understand that lines do need to be paid in full at some point,” she adds. “That may be 15 years from now, but almost all lines are interest only. If you pay only interest, then at the end of the term, you’ll still owe the full principal.”
First Hawaiian Bank’s Home Equity FirstLine does have a lock feature. You can lock any or all of the line. Various fixed rates are available from 3-year to 10-year terms.
“Home prices continued climbing across the country in August,” says David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. “Nineteen of the 20 cities and both composites showed monthly gains in August. The sustained good news in home prices over the past five months makes us optimistic for continued recovery in the housing market.”
And it’s true. With housing inventory down on Oahu from a year ago, the homes that are for sale are selling faster – and the prices are rising, which means you may have built equity without even knowing it.