Matt O’Hara, Chief Investment Officer, Unison.
In the 2008 financial crisis, millions of Americans faced mounting debt burdens as their home values plummeted and access to affordable credit evaporated. Many turned to high-interest credit cards and payday loans to cover essential expenses, leading to a cycle of financial strain that lasted years. The crisis underscored a painful reality: When debt becomes unmanageable, it can destabilize even the most secure households.
Fast forward to today, and while home values have recovered and even surged, the challenge of managing high-cost debt remains a pressing issue. Costly interest rates on credit cards, car loans and home equity lines of credit (HELOCs) are once again squeezing monthly budgets. For many, leveraging home value can offer financial relief and stability amid turbulent times.
An Alternative Approach
The value of one’s home is a powerful yet underutilized financial asset. Over the past decade, home values have risen dramatically, with Americans collectively holding over $35 trillion in home equity. However, many continue to pay high interest rates on unsecured debts such as credit cards and car loans, which lack tax advantages. By consolidating these liabilities with alternative financing associated with their homes, these individuals can significantly reduce their monthly payments, freeing up cash flow for other priorities.
U.S. credit card balances reached $1.21 trillion in Q4 2024, and auto loan balances grew to $1.66 trillion, according to the Federal Reserve Bank of New York. At the same time, HELOC balances rose to $396 billion, representing the 11th consecutive quarterly increase since Q1 2022.
Take, for example, a homeowner with a $50,000 credit card balance at an interest rate of 19%, and a $100,000 HELOC at 11%. The combined monthly payments on these debts could be thousands of dollars. Consolidating these into home-based alternative financing could reduce their monthly payments by hundreds of—or even a thousand—dollars. This improved cash flow provides immediate relief and helps promote long-term stability.
Additionally, interest payments on home-based alternative financing used to consolidate debt are often tax-deductible, unlike the interest on credit cards or car loans. This tax benefit further reduces the effective cost of borrowing, making it an attractive option for savvy financial planners.
While these loans offer lower monthly payments, homeowners will give up a portion of future equity gains. Additionally, homeowners potentially pay a balloon payment at the end of the loan.
An Investor’s Perspective
For investors, home-based alternative financing offers unique appeal. These loans provide predictable cash flow, yields that can be attractive relative to risk and a level of security tied to the underlying asset—real estate. Individuals with substantial home value are highly motivated to maintain their payments, resulting in low default rates on home-secured loans.
The growing demand for these financial products aligns with larger market trends. In the past five years alone, home equity has grown rapidly. For institutional investors, this represents a scalable asset class with room for significant growth.
Shared Benefits
The appeal of home-based alternative financing lies in the ability to address real-world financial pain points for homeowners while offering the potential for attractive returns for investors. For consumers, the potential benefits include lower monthly payments, especially when they can cut their monthly payments by half or more using their home’s future appreciation; reduced financial stress; and access to funds for critical needs, whether it’s debt consolidation, home improvements, education costs or even starting a small business. For investors, these loans can provide a steady stream of income and exposure to the (normally) appreciating U.S. housing market.
As we look to the future, the alignment of consumer demand and investor appetite makes home-based alternative financing a vital tool in modern financial planning. Whether an individual seeking greater financial freedom or an investor looking for attractive yield-to-risk asset-backed opportunities, this growing market segment offers something for both parties.
By focusing on shared benefits, we can create financial solutions that are both practical for consumers and sustainable for investors, fostering a healthier and more equitable economic landscape.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?