How to pay back your HEI: cash savings

A cash savings option is an effective way for homeowners to pay back their HEI without taking on additional debt. Explore the pros and cons to determine if using your savings is best for you.

Lindsay VanSomeren
September 14, 2023
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An HEI can be a great way to access cash when you need it without taking on any debt. You can use those funds to access better career opportunities, pay off high-interest debt, upgrade your home, and more — all without having to worry about making monthly payments. 

Many people find that their financial situations have improved greatly by taking out an HEI — so much so that you might be ready to pay off your HEI and regain full control of your home equity. If you receive a windfall, you may also be curious about how to pay back your HEI in cash.

There are many good ways to use your cash savings, and paying back your HEI may be one of them. We’ll walk you through a few things you should consider so you can make a confident decision. If using your cash savings to pay off your HEI is right for you, we’ll also show you how to do it.

How do cash savings work?

“Cash savings” can mean many things besides just a stack of dollar bills in your hand. Bank accounts are handy places to store your cash and are generally insured against losses by the FDIC on up to $250,000 with each financial institution. Many people also consider things that they could quickly and easily sell as “cash,” such as vested stock options, cryptocurrency, and other investments. 

If you’ve received a windfall, such as an inheritance from a loved one, you can consider using it to pay back your HEI. You can also save up on your own to pay off your HEI if you know you’ll want to go this route in the future. 

Paying back your HEI with cash works just the same as any other repayment method, minus the need to first find a lump sum of cash through financing or by selling your home. While using cash savings to repay your HEI will save on interest over other popular options, such as a cash-out refinance, there are opportunity costs that come with this repayment strategy.  We’ll discuss this consideration — and others — below. 

Pros and cons of using cash savings to pay back your HEI

If you have the funds, it can seem like a no-brainer to go ahead and pay back your HEI. Before you do, however, it’s best to consider the benefits and pitfalls first:

Pros of paying back your HEI with cash savings

  • Avoid debt: Many people take out loans to pay back their HEI. If you’re able to pay off your HEI in cash, however, you can stay debt-free. You don’t have to worry about monthly payments or the potential for default if you run into hard times. 
  • Save money: If you borrow money to pay back your HEI you’ll have to pay additional costs from interest and fees, which can cost hundreds or thousands of dollars. Paying your HEI back with cash lets you bypass all of those costs. 
  • Quicker process: Many people have to sell their home or apply for a large loan in order to raise the funds to pay back their HEI. If you already have those funds available, you can skip right to the final HEI payoff step. 
  • Keep your home: Lots of people repay their HEI when they sell their home, since this is a time when you typically have a lot of funds available. If you want to retain ownership of your home, paying back your HEI in cash will ensure you avoid a sale. 

Cons of paying back your HEI with cash savings

  • Depleted savings: Depending on your situation, it can take a significant amount of funds to repay your HEI, and you’ll need to be careful not to drain your cash reserves entirely. That way, you still have an emergency fund in place to protect you. 
  • Difficult to obtain: It can take a long time to save up enough money to pay back your HEI, and not everyone is lucky enough to receive a cash windfall. Using cash savings to pay back an HEI isn’t a viable option for many people. 
  • Opportunity costs: Using cash to pay back your HEI means you can’t use that money for other things that might be more important, like growing your savings, investing in lucrative opportunities, sending your kids to college, or buying a new paid-off car. 
  • No credit-building benefit: Taking out a loan to pay back your HEI has plenty of downsides, but one of the benefits is that you can use it as a credit-building opportunity. If you pay back your HEI in cash, you lose that opportunity to build a positive payment history, which is one of the most important factors for determining your credit score. 
cash-savings

Steps to pay back your HEI in cash

If you think you’re ready to take the leap and use your existing funds to pay back your HEI, here’s a good strategy for how to do it. 

Step 1: Figure out how much cash savings you have available

First, you need to know how much money you’re working with. Tally up all of the cash (and cash equivalents, such as investments) that you have available to you. 

The key word here is “available.” Remember to reserve any funds that are currently earmarked for other, more important purposes, such as your emergency fund and your retirement accounts. This is especially important to consider so that you’re secure in your home for years to come. A paid-off HEI is nice, but not having to stress about losing your home in the future is even nicer. 

If you don’t yet have enough cash savings, you still have options: if you have time remaining in your HEI’s term, you can create an automated savings plan. Create a separate savings account (ideally one that’s high-yield) and set up automatic transfers into this account each month. If you schedule it for right after you’re paid, you may not even realize that it’s been moved from your checking account, and you won’t have to manage anything more until it’s time to reap your cash harvest. 

Step 2: Contact Point for a payoff estimate

Point will email you a new statement each quarter with account details, including a payoff estimate based on your current home value. You can also reach out to Point’s customer service team at servicing@point.com if you want a newer, up-to-date estimate. Keep in mind this is only an estimate; the final payment amount will be calculated in a later step. 

Step 3: Consider alternative options

Compare your payoff estimate with the amount of cash you have available to see if you have enough. If not, you can consider saving more money, holding your HEI for longer (if you still have time remaining in your term), or using another payoff method. 

Now that you have the full range of information available, you can do a more thorough assessment of your options for paying back your HEI. A fiduciary financial advisor that you pay on a fee-only basis (as opposed to a sales commission) can be an invaluable tool at this stage. Your financial advisor can offer support to help you make the best decision, such as running future projections to ensure your financial stability. 

As you assess your options, make sure you take into account these popular HEI payoff methods:

Step 4: Pay off your HEI

If you’ve decided that paying back your HEI with your cash savings is the best approach, you can reach out again to Point’s customer service team to get the ball rolling. It’s a relatively quick process from here. 

Point will start by getting an appraisal of your home, which can usually be done remotely via automated methods. The customer service team will use this number to prepare a final payoff amount, which it’ll send to you with instructions for how to send in the final payment. You can do this in a few different ways:

  • Money order
  • Wire transfer
  • Certified funds
  • Cashier’s check

You’ll receive a confirmation once Point receives the funds. Point will then file to remove the lien on your home, and your HEI will be complete. 

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Conclusion

If you have the funds, paying back your HEI with cash savings can be an excellent option. That’s especially true if you’re looking to avoid debt and you’re not interested in selling your home. 

A strong word of caution, however: it’s never a good idea to drain your savings accounts entirely. Make sure you retain the funds you need to ensure your family’s security, especially your retirement and emergency savings. That way, you can continue enjoying your home to its fullest. 

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Frequently Asked Questions

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This content is general in nature and is provided for informational purposes only. Point is not a financial advisor and does not offer financial planning services.  In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a licensed financial advisor if necessary.

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