For most homeowners renovations are a fact of life. Ideally they’re carefully planned, budgeted for and executed but the reality is that sometimes roofs leak or tornadoes touch down. Repairs must be made and paid for.
Last week, The Wall Street Journal reported on a recent survey which found almost 1/3rd of homeowners earning at least $100,000 a year plan to pay for their renovation projects with credit cards. This was an increase in 2016, and the Wall Street Journal wonders if “[m]aybe those credit-card rewards – airline miles, concert tickets, a new laptop – are just too tempting.”
Maybe. However, whether planned or in an emergency, taking on credit card debt can mean the type of oppressive debt that can prevent individuals from continuing to build wealth or meet their financial goals. Considering that the Journal reports spending on home improvements and repairs are going to continue to rise, isn’t having an alternative and potentially better option in place a good idea?
Having a securities-based line of credit available to pay for a home repair can be an easy and effective solution when faced with a new roof or replacing a furnace. We’ve discussed the advantages of using securities-based loans as a way to finance a home purchase or other needs that may arise. As an adviser, providing a securities-based line of credit for a client means offering them a flexible solution that is typically no-cost to set up.
Additionally, 70% clients who use an advisor are borrowing money, to the tune of $42,000 with an average rate of 7.2%. The Wall Street Journal’s article proves that even affluent clients are borrowing, perhaps to their detriment. Instead of adding credit card debt to this average, why not simplify with one loan in the form of a securities-based line of credit? They could use the securities-based loan to refinance their debt at a lower rate.
Not only this, but the option of paying for repairs and renovations with a securities-based loan means their cash can continue to work for them. As the Wall Street Journal Points out: “…depleting cash reserves means you can’t invest those funds and lose out on possible tax deductions on home-loan interest.” By offering a securities-based loan, like BriteLine, advisers also have the possibility of offering lower interest rates to their clients, and the line can remain open for other needs that arise.
At the Universe and throughout much of our CEO and Founder Tom Anderson’s work, we’ve highlighted how much of a difference having a securities-based loan in place can mean in an emergency. Having an securities-based line of credit in place can mean peace of mind and security, even if a tornado doesn’t hit. But if it does, its easy access makes it a more holistically-minded option than simply putting repairs onto a credit card or waiting for an insurance company in a high-stress situation.
 Source: Statistical Analysis of the Survey of Consumer Finance, September 2014, a CEB Data Analysis of the Federal Reserve Board’s 2013 survey of Consumer Finance, Tables 6 & 13.