The holiday season is a lot of fun. But it also comes with a cost. According to statistics, the average American spends approximately $1,400 on holiday-related expenses such as gifts, travel, decorations, and food.

While everyone is always aware that the holiday season is coming, it still catches some people unprepared, which sometimes results in debt. With the high-interest rates that come with credit card debts which are often the first option, you could be considering other cheaper options for repaying the debt.

This guide focuses on leveraging your home’s equity to pay off your debts at better rates.

Cash-Out Refinance

Cash-out refinance involves taking a new loan that is larger than the old mortgage loan allowing you to keep the excess. In most cases, people use cash-out refinance to pay for home improvements, but others use it to pay off high-interest rates, which in the context of this guide would be holiday debt.

The amount of money left at your disposal after a cash-out refinance is determined by your equity. The simplest definition of equity is the difference between what you owe on your mortgage and your property’s value.

It is also important to note that going for cash-out refinance means you will give up some equity on your home, meaning you get less money in your pocket if you sell your home. It also means that your repayment period increases significantly, subject to the amount you borrow.

Home Equity Line Of Credit

A home equity line of credit (HOLEC) is another way you can leverage your home’s equity to finance your debts. This option works like a credit card debt; a borrower can draw funds as they need as long as they stay below the pre-approved limit. Like a cash-out refinance option, your limit will be determined by your home’s equity and is capped at 89% of your property’s equity.

While HOLEC is somewhat similar to credit card debt, it has some advantages over credit card debt. These advantages include lower interest rates, tax deductible interests, fixed repayment terms, higher credit limits, and faster approval rates, considering it is secured by collateral.

However, keep in mind that lenders will have different terms, so it is a good idea to shop around before settling for a lender. But if you are unsure what to look for, SoFi HELOC can be a good fit as they offer lower monthly payments, dedicated one-on-one support, and financing up to $500,000 of your home’s equity.

Rate and Term Refinance

If you do not feel like cash-out refinance or HOLEC is for you, consider rate and term refinance. Rate and term refinance involves adjusting the term of your mortgage and interest rates. By adjusting the term, for example, from 15 to 30 years, your monthly payment can decrease significantly, leaving you with extra cash to put into servicing other debts.

However, you must remember that readjusting your term will mean paying more interest over time. If you are in a hurry to solve your financial woes, this refinance option can be faster than a cash out refinance.

The best bit is that you can adjust your term limit by getting an FHA Streamline refinance if you have an FHA loan. The same option is available for Veterans Affairs (VA) loan borrowers under VA Streamline refinance.

Bottom Line

A home loan is among the most affordable ways of borrowing money, especially when you contrast it with some options, such as credit card debts. However, it is also essential to understand that using your home equity to access financing means you will have less stake in your home if you intend to sell it.

If you have accumulated too much debt over the holiday, your home equity can help you accumulate that debt much easier in the options highlighted in this guide. But it is always a good idea to reserve using home equity to finance significant financial obligations such as home upgrades, medical bills, college fees, etc.