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The ABCs of Home Equity Financing For The Holidays

screen-shot-2016-11-04-at-4-16-40-pmBy Lisa Scontras

With 49 days until Christmas, you may already be feeling the before-the-holidays financial crunch. If you routinely use credit cards to cover holiday expenses, there may be a less expensive, less stressful, more common-sensible way to pay for the gifts you give this year: home equity financing for the holidays.

Understanding the basics of home equity lines of credit (HELOC) may help you to lower your anxiety level by helping you pay for holiday purchases on your shopping list, or to dig out from under the debt afterward by consolidating holiday bills — or both.

Holiday shoppers may flock to Black Friday sales because they offer tremendous savings on large-ticket items, but often give little regard to the interest they pay on the monthly credit card payments that follow or the debt that takes months to pay off. With a different strategy, you may avoid the post-holiday interest-rate blues by applying for a home equity line of credit from First Hawaiian Bank.

According to Derek Wong, vice president of Credit Products at First Hawaiian Bank, debt management and consolidation is as simple as taking out a low-interest HELOC. We asked Wong to explain the basics of home-equity financing.

How does a HELOC work?

A home equity line of credit allows homeowners to borrow funds against the equity in their home. Homeowners may typically borrow up to 80 percent of the value of their home, less any outstanding balance on any existing mortgages. Because a HELOC is a revolving line of credit, you can borrow any amount as needed up to the credit limit. The interest rate on a HELOC is often lower than on other unsecured loan and credit card products because the home is used as collateral to secure the line of credit.

Why is a HELOC a smarter way for me to pay for my Christmas purchases?

• Bill consolidation: You may use a HELOC to conveniently manage your finances with a low, single monthly payment by consolidating other high-interest credit card and loan balances.

• Better rates: The interest rate on a HELOC is often significantly lower than on an unsecured loan or credit card products because your home is used as collateral.

• Lower monthly payments: Lower interest rates usually mean lower, more manageable payments. Additionally, most lenders allow you to make interest-only payments or provide other payment options.

• Tax deductibility: In most cases, you can claim the interest you pay as a tax deduction (consult your tax adviser).

• Convenience: You can easily draw funds from your HELOC by making a transfer to your checking account. Also, you can make payments simply by transferring funds from a checking account.

How difficult is it to set up a HELOC? And how long does it take?

Applying for a HELOC takes time, as you’ll need to furnish various documents similar to those when applying for a mortgage. At First Hawaiian Bank, personal bankers will help guide you through every step of the application process. Once you submit your application and required documents, typically, a decision will be made in about 30 to 45 days.

Once I pay off my Christmas bills, are the funds still available?

Yes. Unlike regular loans, as you pay down your HELOC balance, your available credit line is replenished, allowing you to access funds for other uses, besides consolidating holiday debt. You may need to pay for private school/ college tuition, a new roof for your home or other home improvements, a new automobile or for an emergency fund. A HELOC is a convenient and practical financing option all year round.

So whether you’re planning on braving the holiday shopping season or simply planning ahead for future milestones, a HELOC is a smart choice. Visit any First Hawaiian Bank branch and talk to a personal banker who will help you with all of your home equity financing needs.

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