Are your clients being urged not to refinance?

by Justin da Rosa16 Sep 2015
The refi boom could come to an end sooner than you think if consumers take the advice of financial planners and others offering a list of bad reasons to tap into home equity.

With the threat of a Fed move to raise rates this week and with home prices on the ascendency in so many US markets, originators have seen a flurry of refi activity this month. But how much of that tapping into home equity represented a sound financial move? And how much represented a misstep?

Here’s a list, courtesy of HSH, of dubious reasons to convert some home equity in to cash. Originators, beware.
 
1 – “Guaranteed” investments
Taking cash out of home equity to buy into the stock market is risky. The money homeowners put up can disappear as the market fluctuates – and your clients will be left with a larger home loan to pay off.
 
2 – Monthly expenses
Repeatedly chipping away at home equity to cover monthly costs, like groceries, utilities or transportation, could be a sign that clients are living beyond their means.
 
3 – Expensive gifts
Holidays and special occasions are tempting times to splurge on gifts for loved ones, but home equity can cause clients to overspend unnecessarily.
 
4 – A wedding
It’s easy to fall for an expensive designer gown and an exotic honeymoon, and home equity can seem like a great source of cash to cover those costs, but it’s important that your clients establish priorities: a one-day wedding, or a home they can truly call their own.

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