Dec 18, 2019
By Mariclare Cranston, Content Specialist

Using your Home’s Equity for Vacation

You and your family have been dreaming about that perfect Disney vacation for years! You’ve managed your budget, and have saved up as much as you can. You need just a little extra to help pay for things like your rental car, food and flights. While you may be inclined to take out your credit card to cover those costs, keep in mind that doing could add a high interest rate to an already-expensive purchase.

Can I use my home’s equity to pay for vacation?

It’s always smart to save up as much money as you can towards your vacation rather than financing the costs. Any type of loan, whether it is a Credit Card, Personal Loan or a Home Equity loan, means you are taking on a financial obligation. It’s important to be absolutely sure that you are able to assume this obligation without sacrificing your other financial goals.

Vacation Costs
The average family of 4 can expect to spend around $5,700 on a 7-day Disney vacation.

*Money We Have, 1/15/18,

Once you have saved as much as possible towards your vacation, you may be able to use a Home Equity Loan or Home Equity Line of Credit (HELOC) to help you take that dream vacation. Because both options use your home as collateral, you will be able to borrow more than you typically can with a Personal Loan. Both Home Equity Loans and HELOCs will typically carry a lower interest rate than other funding options, including credit cards or personal loans. This is important because the lower the interest rate, the less money you are spending on interest charges.

Determining which is a better option, though, depends on your individual and long-term needs. There are pros and cons to both so it’s important to really look at your whole financial picture before deciding.

If you want to be able to receive a lump sum to help finance your vacation, but still have funds left over, a HELOC may be a better option for you. Because HELOCs allow you to draw money as needed, you can advance a sum for your vacation costs and still have the line available for future emergencies or large expenses. You only have monthly payments if you use your HELOC, and often those payments are interest-only during the draw period. HELOCs require some discipline; it’s important to resist the temptation to use it for miscellaneous expenses.

A Home Equity Loan might be a more attractive option if you simply need funds for your vacation. With this option, you will receive all of the money upfront, allowing you to pay for all of your vacation costs. Because you receive a lump sum, though, be sure to calculate all of the expenses that you will need to cover before applying for your Home Equity Loan. If you are planning your vacation in advance, you may want to set up a separate savings account to keep that money separate and earmarked solely for your vacation.

Use our vacation loan payment calculator to estimate your monthly payment.

Is a vacation loan right for me?

There are some things to consider before borrowing money to go on vacation, though. First, be sure that you have saved up as much as you can for the trip. You’ll want to borrow only what you absolutely need. Second, remember that a Home Equity Loan or HELOC is a financial commitment. If the payments are going to impact your savings goals, it may not be the right time to take that trip. In other words, don’t put your financial foundation in jeopardy to take a vacation.

What can I use a vacation loan for?

The funds you receive from your Home Equity Loan or HELOC can be used for just about everything!

  • Plane tickets
  • Accommodations
  • Car rental
  • Dining
  • Cruises
  • Excursions
  • Theme parks
  • Anything else to make your vacation memorable!

How do I save money on vacation?

While a Home Equity Loan or HELOC can help fill in the funding gaps when it comes to paying for your trip, there are ways to help cut costs for your upcoming vacation, too. Here are some tips to save money on your next vacation.

  • Look for discount codes. Websites like Groupon often have discounts on restaurants, rental cars and attractions. Use your credit card Reward points if you can.
  • Sign up for email alerts on airfare and hotel deals. You’ll be able to take advantage of deals you may otherwise miss. Websites including TravelZoo or TravelPirates will give you alerts on vacation deals.
  • Plan ahead! The more time you give yourself, the more research you’ll be able to do on your destination and ways to make it affordable. You can very often get a discount for buying tickets in advance. Giving yourself more time also means you’ll also be able to save more money towards your vacation.
  • Set up a Vacation Savings. At MHV, you can establish an additional Savings Account and use it exclusively for vacation planning! You can even set up an automatic transfer into your Vacation Savings!
  • Look for accommodations that include a kitchenette. You can save a bundle by preparing your own breakfasts and lunches, and only go out for dinners. Research places on AirBnB, VRBO, HomeToGo to find accommodations that will likely cost less than a hotel room.

Download our free Budget Tool
to help you plan for your vacation!

download our budget sheet

Do I qualify for a Home Equity Loan or HELOC?

Lenders will often look, at the very least, at your credit score and your debt-to-income ratio (DTI) before deciding to lend to you. Your credit score is a mathematical analysis of how likely you are to repay your loan on time. Your score factors in things like how many loans or credit cards you have, how well you pay your bills on time, how much of your available credit you’ve used and how old your oldest credit or loan account is. All of these factors are weighted and combined to assign you a score. It is very important to have a good understanding of what your credit score is before you begin the process of applying for a home equity loan. If your score isn’t high enough, there are steps you can take to work on improving it.

DTI measures how much debt you currently have relative to your income. A DTI that is too high suggests you may be spread too financially thin to be able to make the payments on your personal loan. Even if you have a good credit score, a high DTI can cause some lenders to deny your application. Using a monthly budget tool is a great way to manage your finances and keep your debt at a manageable level.

For more information on understanding your credit, watch our brief explainer video here. 

Creating memories that will last a lifetime is one of the greatest gifts you can give to yourself and your family! Your home’s equity may be the solution you need to make that happen.

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