Three reasons to consider a home equity loan
BY LISA SCONTRAS
How important is it to you for your keiki to get a great education? According to Derek Wong, vice president of credit products at First Hawaiian Bank, paying private school tuition is one of the top three reasons Hawaii homeowners are tapping into their home equity.
“Hawaii continues to be a place for great private schools, but with that comes a price tag,” says Wong. “With some schools nearing the $20,000-a-year mark, families are searching for the best way to pay for it. When you add books and summer school, and if you have more than one child at a private school, it can add up to a very large recurring annual bill. College tuition is even more. And while it may be common on the mainland for students to take out their own school loans, Hawaii parents will typically pay these costs, at least for the first four years.
“All parents believe that a solid education provides a strong return on investment,” he continues. “Some studies say that a college education can bring in $1 million or more over a person’s career. With such an enticing goal for our keiki, home equity lines offer flexible payment options and lower rates and possible tax deductibility. And unique to First Hawaiian Bank is our fixed-rate locks up to 12 years.”
Upgrading your home to be more energy-efficient also is among the top three reasons cited for seeking a home equity line of credit. Photovoltaic panels, which convert the sun’s energy into electricity, are gaining immense popularity as a way for Hawaii homeowners to go green and to cut their electric bills.
“We’ve all seen the executive on TV telling us that when oil prices go up, energy bills also increase,” says Wong. “So we need to not only look for efficient energy usage, but also look at alternatives to oil. Both solar hot water and PV provide great alternatives. If you drive around any neighborhood, you’ll visibly notice more homes with PV panels. Some Hawaii PV companies have told us they have seen more than double the volume and anticipate strong demand. The economics are very attractive with rising energy costs and tax credits.”
There’s even a sunnier reason to go solar and dip into your equity. First Hawaiian Bank is working with seven photovoltaic companies to offer zero-percent loans for 12 months of financing.
Rounding out the top three reasons to have and access an equity line is to buy either a new or used car.
“According to the Hawaii Automobile Dealers Association, auto sales were lagging for a few years, but are starting to pick up,” says Wong. “Fuel efficiency in new cars is taking a much higher priority, particularly in Hawaii where the state leads the nation in gas prices. So buyers are being more discriminating and, if their budget doesn’t allow for a new car purchase, many are opting for a used one. An equity line is a quick and easy way to make that purchase.”
Of course, the longtime motivation of debt consolidation is still a common goal among homeowners who have used their home equity for a rational solution to a financial problem. And today, it is even more logical than ever.
“Lower interest rates and tax deductibility make borrowing equity even more sound,” says Wong. Also, it’s convenient to purchase because you have access to your money up to your credit limit, so it’s like having cash – no waiting for approvals or loans closings.
“Most equity lines offer variable rates, but few like First Hawaiian Bank offer fixed-rate locks,” adds Wong. “For large expenses, which usually are equity line draws, people will take a few years to pay off the loan, and a fixed-rate lock will assure the same low rate and payment.”
For owner occupants, there is a 75 percent loan-to-value ratio, which means you can only borrow up to 75 percent of your home’s current assessed value. Interest rates at First Hawaiian Bank are currently at 1.99 percent, fixed for two years. The normal variable rate is at 4.5 percent.
“There are many one-year fixed-rate promos, but after that first year, your rate can jump up,” says Wong. “We’re offering a little more certainty with a two-year fixed rate.”
First Hawaiian Bank’s signature local servicing and the assignment of a personal banker to help guide you through your options are what borrowers especially appreciate.