Get a Head Start on Holiday Shopping and Resolutions

Mortgage News from Quicken Loans

Every year many people get a head start on their holiday shopping on the busiest day of the year--the day after Thanksgiving. It's a long weekend when people have more time to spend more money for gifts for their family and friends. And it's probably the time of year when many people run up huge credit card bills.

But this time, wouldn't you like to put those credit cards away and still be able to do your shopping? Of course you would! But how?

You can refinance your mortgage to get cash for your holiday shopping. It's better than using a credit card because of two reasons. First, the interest rate you get on a mortgage is usually much lower than the interest rate you get on credit cards. Second, mortgage interest is usually tax-deductible (be sure to check with your tax advisor); but you can't deduct the interest on your credit card.

Get a Home Equity Loan

There are two types of home equity loans you can get in order to get cash for large expenditures. The first is a standard home equity loan which is a second mortgage on your home that converts the equity you have in your home into a lump sum of cash. The second is a home equity line of credit (HELOC)--this is also a second mortgage that converts your equity into cash; the difference is that instead getting of a lump sum, it works like a credit card in that you can draw on it multiple times during the draw period. You pay back what you borrow if and when you borrow.

Do a Cash-Out Refinance

You don't necessarily have to get a second mortgage to get cash from your home equity. You could just refinance your first mortgage to a loan amount that is larger than what you owe. This is called a "cash-out refinance." Your new mortgage pays off your old mortgage and you have cash to use as you wish. For example, let's say you have a home that's worth $200,000. Your mortgage balance is $100,000. That means you have 50 percent equity in your home. You get a new mortgage for $120,000. Your original mortgage is paid off with the new one and you have $20,000 extra to spend on holiday gifts.

Consolidate Debt

You could also get a jump on your New Year's resolution to pay off your credit card debt by consolidating your debt. You can use the money you get from the new mortgage--whether it's a home equity loan, a home equity line of credit, or a cash-out refinance transaction--and pay off your credit card debt. Again, the benefit of this is that you're turning your non-tax-deductible debt into tax-deductible debt. You also may be improving your credit rating by paying off your debt so that the next time you need to get financing, you may be able to get a lower interest rate, and thereby a lower monthly payment.

So, if you need cash for your holiday shopping this year, think about using your mortgage. You can either do a cash-out refinance, get a home equity loan or home equity line of credit. You can pay off your credit card debt and not have to run up your balances. If you're not sure which way is best for you, speak to an experienced home loan expert who can answer all your questions.

This article is reprinted by permission from Quicken Loans © 2006 Quicken Loans Inc. All rights reserved.