Can I Use a Home Equity Loan to Pay For a Wedding?

Can I borrow money to pay for a wedding? The answer to this question is, “Yes, of course.”

Lots of people do it. They use credit cards or personal loans — or they take out loans against their retirement savings — to pay for the special day.

Someone who owns a home has a more powerful borrowing tool: Using home equity to pay for a wedding.

Should I Borrow Money for a Wedding?

But there’s a bigger question families should consider before getting a wedding loan: Should I borrow money for a wedding?

For couples and their families who struggle to pay for a wedding—which costs an average of $35,000 — a loan is an obvious solution. Borrowing the money delays wedding costs and spreads the expense over more time, which helps. 

However, borrowing also increases wedding costs because of interest charges and the resulting loan payments could make life after the wedding harder for the newlyweds and their families for years to come.

So, it’s best to explore other options before borrowing. When you’re sure you need to get a wedding loan, try to limit the negative effects of the loan by doing the following.

1. Monitor Costs

Weddings tend to grow. Invitation lists that start out short start to expand: “If we’re inviting your aunt, then we have to invite all four of my aunts.” And so on. It’s not just the invitation list. Wedding plans — what to serve, how to decorate, which venues to rent — grow more elaborate, too.

This is good. It’s natural to include more people and to create a more festive setting. But someone has to keep track of the expenses. Someone has to consider the financial impact of every choice. Otherwise, the budget — along with the loan size and future financial burden — can grow too large.   

So put someone in charge of the finances — someone who can create a reasonable budget. Then, listen to that person’s advice as wedding plans start to grow. This will help control costs. 

2. Borrow Strategically  

What is the easiest way to borrow money for a wedding? Use credit cards to pay expenses as they come up.

Typically, people who finance a wedding with credit cards never plan to do that. It just happened, and they didn’t know how much they were swiping until a month or so after the wedding day. That’s when the monthly statements arrive to tell their tale, and the story is amplified by the 26 to 30 percent interest credit cards normally charge. 

A better way to borrow for a wedding? Be proactive. Find out how much you need to borrow. (Check with the budget person you appointed in Step 1.) Then, borrow that amount of money on purpose. Will $20,000 cover everything? If so, it’s time to find the best way to borrow $20,000.

Using a Home Equity Loan To Pay For a Wedding

Homeowners have a secret power when they need to borrow money for a wedding: The equity that’s built up in their home. By leveraging their home equity as an asset, they can borrow more money on better terms. This means lower monthly payments even when borrowing a larger sum.

For this to work, a homeowner—whether a bride, a groom, a parent, or a friend—has to take out the loan, using their home as collateral. This collateral allows the lender to charge less interest: Think 8 percent instead of 18 percent.

Lower interest rates make a huge difference in long-term borrowing costs:

	Personal loan	Home equity loan
Amount	$20,000	$20,000
Interest rate	18 percent	8 percent
Monthly payment	$508	$406
Loan term	5 years	5 years
Total interest due	$10,472	$4,332

Borrowers can reduce the total interest paid by making extra payments on the loan’s principal each month.

Actual interest rates will vary by borrower. 

Home Equity Loans for a Wedding: How Do They Work?

To get a home equity loan, the borrower needs home equity. Equity is the part of the home’s value that’s already been paid off. For example, the owner of a $400,000 home who owes $250,000 on their mortgage has $150,000 in home equity.

Someone who bought a home last year and put only 3.5 percent down won’t have much home equity yet. Someone who bought a home 10 years ago and put 10 percent down probably has a lot of equity.

Also, keep in mind homeowners who have a lot of equity can’t use it all. Lenders usually require 15 to 20 percent of a home’s equity to remain in the home. For a $400,000 home, that means $60,000 to $80,000 must remain untouched.

Qualifying for the Home Equity Loan

Homeowners with plenty of equity still need to qualify for the loan. This means meeting the lender’s credit and income requirements. Minimum FICO scores for home equity loans can vary by lender. They vary from 620 to 700. 

The lender will also verify the borrower’s income and compare it to other monthly debts and expenses to determine whether the borrower can afford the new loan’s monthly payment. 

3 Types of Home Equity Loans for Weddings

These types of loans can access a home’s equity to pay for a wedding:

1. Fixed-Rate Home Equity Loan 

A home equity loan resembles a personal loan or any other kind of installment loan — except for the home equity that backs the loan. The security provided by this home equity allows lenders to charge lower interest rates, saving money for the borrower.

The interest rate and monthly payment amount of a home equity loan stay the same throughout the loan’s term. The loan will not affect the homeowner’s existing mortgage; that is, the homeowner keeps making payments on the original mortgage as well as the new home equity loan.  

2. Home Equity Line of Credit (HELOC) 

A home equity line of credit, or HELOC, resembles a credit card — but one with a much lower interest rate because it’s backed by home equity. A homeowner who opens a home equity line of credit does not have to use the credit immediately. As wedding expenses must be paid, the borrower can pull money from the HELOC up to the account’s maximum.

Each month, the borrower will owe a HELOC payment based on the amount borrowed and the interest rate at that time. So, minimum payments will vary from month to month. Interest rates for HELOCs change along with the market, but they’re typically significantly lower than credit card interest rates.

Like a fixed home equity loan, a HELOC can exist in addition to the home’s primary mortgage.

3. Cash-Out Refinance  

This method refinances all of a home’s mortgage debt while also borrowing extra cash for wedding expenses. For example, the owner of a $400,000 home who owes $250,000 on the mortgage might qualify to borrow $300,000 — enough to repay the $250,000 mortgage while simultaneously borrowing another $50,000 in cash for the wedding.

Then, the borrower would owe one mortgage payment each month, a payment that combines the mortgage debt with the cash withdrawn for wedding costs. 

A cash-out refi spreads the new debt across the entire mortgage term, which is 30 years for most borrowers. Longer loan terms lower monthly payments but generate higher interest charges over the life of the loan. Compare the long-term cost of the new loan to the cost of keeping the existing mortgage. Getting a home equity loan or HELOC may be cheaper than a cash-out refi. 

Do Lenders Allow You To Use Cash From a Loan for Wedding Expenses?

Lenders will ask why you’re borrowing the money, and the answer could affect your loan. The good news: “Paying for a wedding” is a common loan purpose. This answer won’t shock your loan officer. 

Some niche lenders — a lender specializing in home improvement loans, for example — might say no to a wedding loan. Other lenders might shorten the loan term or charge a slightly higher interest rate for a wedding loan compared to a home improvement loan. 

But that’s OK. You should be shopping around with multiple lenders anyway, rather than counting on one lender to line up just right. By shopping around, you increase the chances of finding a great deal.

Tell the truth when the lender asks why you’re borrowing to avoid committing mortgage fraud.

What Are the Risks of Using Home Equity To Pay For a Wedding?

Lower rates on home equity-backed borrowing can save thousands of dollars. However, tying the wedding costs to home equity can also be risky. If you couldn’t make the payments and defaulted on the loan, you could lose the home. That means the lender could foreclose and sell your home to resolve the debt.

This sounds risky, but you can’t have the pros of a home equity loan without its cons. The fact that you’re risking your home equity allows the lender to issue a lower interest rate. 

Since you’re leveraging the value of your home, which is an investment, many financial advisors recommend using home equity loans only for improving the home or investing in another home (using home equity to make a new home’s down payment, for example).

Of course, you get to decide for yourself whether to tie up home equity to pay wedding costs — but knowing the risks creates better decision-making. As long as you can afford the loan payment, you’re probably taking a reasonable risk.  

Alternatives To Using Home Equity To Pay For a Wedding

If you don’t want to use home equity to pay for a wedding, there are some alternatives:

Alternative to home equity loan for wedding expenses	Pro	Con
Personal loan	No collateral necessary	Higher interest costs
Credit cards	Super convenient	Exorbitant interest rates
401(k) or other retirement fund loans	Affordable	Stunts portfolio growth
Crowdfunding	Debt-free; can be fun	Unreliable
Asking a friend or family member for help	Cost-effective	Awkward
Selling a guitar, fine jewelry, a nice car, a collector’s item, etc.	Debt-free	Regret
Savings	Debt-free; savings balance creates a natural backstop for budgeting	Loss of savings and interest earnings

Comparing Home Equity Loans Saves on Wedding Costs

Borrowing money for a wedding introduces a new wedding expense: interest and loan fees. Keeping these costs low will keep paying off for years into the marriage.  

The best way to pay less: Compare loans and lenders before committing to one. 

See today’s loan rates here.