Should you use home equity to pay for a wedding?
While many people save up for the big day, nearly a third (31%) charge their wedding expenses. With credit card interest rates sailing past 21%, the bride and groom (or their parents) might be tempted to find other ways to finance the big day.
Home equity loans and home equity lines of credit (HELOCs) have lower rates than cards and allow you to borrow a lot more money. You'll also have a lot more time to pay off the debt.
But is it a smart move to tap your home equity for a wedding? We asked the experts.
Home equity is the percentage of your home you own outright, versus your outstanding mortgage balance. If you pay for your home in cash, for example, you'll start with 100% home equity. If you put 20% down, you'd have 20% home equity at closing.
Your home equity grows as you make mortgage payments, but it can also increase if you make home improvements or property values increase.
One of the benefits of home equity is being able to leverage it to take out a home equity loan or HELOC.
Because the debt is secured by your house, you can usually get a better rate and terms than other kinds of financing. But that also means your lender could foreclose if you fail to make on-time payments.
Experts encourage homeowners to think twice before tying up their home equity to fund their big day.
"The most clear downside is that you're putting your home at risk for this one-time event," Jovan Johnson, founder of Atlanta's Piece of Wealth Financial Planning, told CNBC Select. "It can be 20 years, or even more, before you pay off that debt."
You're also taking a substantial financial risk at the very start of your life together, Johnson added."Life happens. You have to plan for the worst-case scenarios," he said. "If you have to relocate, or something happens and you have to sell your home, that's equity you lose out on."
If you're determined to borrow money to pay for your wedding, Johnson said, "I would always start by asking you to consider less risky options — preferably something without your house being collateral."
More than one in ten couples use personal loans to finance their wedding, according to Zola. Because of their intended use, they're often referred to as "wedding loans."
Here's how a wedding loan compares to home equity financing:
If you opt for a wedding loan, LightStream guarantees it will beat competitors' rates and Upstart accepts applicants with credit scores as low as 300. Both made CNBC Select's list of best lenders for wedding loans.
6.94% - 25.29%* APR with AutoPay
Debt consolidation, home improvement, auto financing, medical expenses, and others
$5,000 to $100,000
24 to 144 months* dependent on loan purpose
Good
None
None
None
Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.
7.8% - 35.99%
Debt consolidation, credit card refinancing, wedding, moving or medical
$1,000 to $50,000
36 and 60 months
Credit score of 300 on at least one credit report (but will accept applicants whose credit history is so insufficient they don't have a credit score)
0% to 12% of the target amount
None
The greater of 5% of last amount due or $15, whichever is greater
Terms apply.
If you're approved for a home equity loan or HELOC, you can use the funds for nearly any reason, including paying for a wedding. You'lll get a lower interest rate than with a personal loan or credit cards, and you'll have a single debt rather than numerous credit card bills. But experts advise caution because it requires using your house as collateral and could risk foreclosure.
If you're determined to borrow from your home equity to pay for a wedding, a HELOC may make more sense. Interest rates can be lower and you can borrow exactly how much you need, rather than paying for financing you didn't use.
You can determine your home equity by subtracting your outstanding mortgage balance from your house's current market value. If your property is worth $500,000 and you have $200,000 on your mortgage, you have 60% equity ($300,000). Reach out to a realtor or appraiser to understand your home's market value.Money matters — so make the most of it. Get expert tips, strategies, news and everything else you need to maximize your money, right to your inbox. Sign up here.
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every mortgage article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of mortgage products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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