I posted a graphic this week that got people talking, so let me walk through the whole thing properly.
Picture $35,000 of credit card debt. Not an unusual number. I have lots of conversations with clients about high-interest credit card debt, and people keep asking the same thing: how expensive is it, really, to take out a home equity loan instead of paying the minimums?
Here is the honest math, and further down, what it actually looked like for a real family I worked with.
Exit one: keep paying credit card minimums. At 22.15% APR, with a typical minimum of 1% of the balance plus interest, the payment starts at $996 a month. Stay on that road and you are paying for 32 years and 7 months. Total interest: $63,106. On a $35,000 balance.
Exit two: a 10-year fixed home equity loan. At 9.5%, the payment is $453 a month. Fixed payment, fixed payoff date. Done in 10 years. Total interest: $19,347.
The difference: $543 lower payment every month, $43,759 less interest paid overall, and you are out of debt 22 years and 7 months sooner.
And here is the part nobody mentions. Of that $996 credit card minimum, $646 is interest. That interest alone is more than the entire home equity payment.
I want to be upfront about where those numbers come from. They are national averages for a median credit score, around 680. With poor credit, credit card rates can run near 36%. With excellent credit, closer to 19%. Your numbers will be your own, but I wanted to show the difference in a worst-case scenario, and the shape of the math holds.
The Browns are friends of mine, and one of the families I have worked with on exactly this. When they came to me, they were carrying almost $60,000 in credit card debt.
We extended them a home equity line behind their first mortgage and fixed their payments. That put about $600 a month back in their pocket, with the flexibility to pay the balance off a lot quicker.
Then came the part they had not expected. Reducing that monthly payment load helped them qualify for a mortgage, and they used it to secure an investor property. There is a lot you can do with home equity lines to give people real monthly cash flow back, and the Browns went from expensive card debt to owning an investment property.
That is the point of all this. It is not hard, and your family sees an immediate impact to the monthly cash flow. You retire the debt quickly and with flexibility.
You have to have equity in your property. You have to have a repayment source, real income, the ability to repay. Those are the caveats.
Outside of that, it is a credit-based scoring system. If you have a great credit score, you are typically going to get through for the home equity loan.
People assume this takes months. The whole process runs 18 to 25 days, and most of that is waiting on one thing.
Once the appraisal is back, the title work and approval are really pretty simple.
The biggest topic in the market right now is affordability, and that is exactly what this is about. From what I am seeing, wages are coming up and prices are coming down, and things are getting better faster than what you hear on TV. Sellers who need to sell right now are making good deals, with real concessions and price drops. In my view it is a great time to be buying.
Home equity loans are one product we offer. Our main business is financing home purchases, and if you are looking at buying a home, that is our bread and butter. But when high-interest card debt is eating a family's monthly cash flow, the home equity loan is the product that complements everything else we do.
That is the real question. If the answer is yes, reach out and we will run your numbers together.
