How many people have a HELOC and never made a draw?

[Duke03]

I was wondering how many people have signed up for a HELOC just for the security of knowing that if worst comes to worst the money is there, but if the world didn't end you would really never need the credit. Currently I have 70k in my emergency fund and was thinking about making a 20k payment on my mortgage balance.  By doing this I'll save over $4,000 in interest over the remaining loan term.  I did a 11 year mortgage originally with a rate of 2.6% and am trying to get it paid off in 3 to 5 years.  Currently it will be paid off in 7.9 years if I just pay it out.  I also have $250,000 of equity on the home so I know I wouldn't have an issue getting a HELOC for say $50,000.

If I did make the 20k payment I'd probably want to get a HELOC just to sleep better at night.  I know I'm weird, but I like having a large cash cushion since we are a single income household.  My job is as steady as they come, but I'm definitely over paid and if worst comes to worst I'd probably take a 30k to 40k pay cut in salary and benefits if I ever lost my current gig.  That's why I like having a good emergency fund.  So who has a HELOC just to sleep at night?

[south of 61]

I do. approx 150K. I would actually like to invest some of the $, but my spouse is reluctant to risk it, so each time I make a mortgage payment, I just watch the mortgage balance go down and the available HELOC go up, that sure helps my spouse sleep better at night!

[zinethstache]

We had one for years without touching it. Got into buying rental properties and modified that HELOC to a higher % out and then promptly drew all of it (101k) for our third rental purchase. It was scary, but 2 years later we sold our residence and paid those off and life is good again:) We know only have 3 rental mortgages for debt and I FIRE in another week.

Had we not taken that risk to make the property investment we would not have the income necessary to FIRE and slow travel full time.

[Retire-Canada]

I have a LOC [not tied to my home equity] as my emergency fund and hold no cash. I've never used it for an emergency.

[Dicey]

Every time I ever speak to someone in any way related to financial planning, they always recommend a HELOC. I've never felt industrious enough to actually apply for one.

A friend of mine who is far less mustachian - she has always earned way more money than me, but can't manage to hang on to any of it - had a HELOC during the 2008 downturn. The bank pulled it completely. She was totally freaked about losing her emergency back-up.

[Retire-Canada]

I'd love to chat with someone who had their HELOC pulled. If anyone on the forums had that happen and doesn't mind sharing the details please post something. Thanks. :)

[Duke03]

I'd love to chat with someone who had their HELOC pulled. If anyone on the forums had that happen and doesn't mind sharing the details please post something. Thanks. :)

Yea I've heard horror stories of the same, but have never personally talked to someone that experienced this first hand.  Not sure if this is a Big Foot phenomenon or what.  If I did get a HELOC to counter balance this risk I'd get it through my local credit union that is extremely conservative and has an outstanding balance sheet.  I'd imagine the only people that had their HELOC's pulled in the last housing market crash where living in HCOL areas and had them with banks that where already under water.

[Retire-Canada]

Yea I've heard horror stories of the same, but have never personally talked to someone that experienced this first hand.  Not sure if this is a Big Foot phenomenon or what.  If I did get a HELOC to counter balance this risk I'd get it through my local credit union that is extremely conservative and has an outstanding balance sheet.  I'd imagine the only people that had their HELOC's pulled in the last housing market crash where living in HCOL areas and had them with banks that where already under water.

Yes. If that actually happened to people [who weren't F'ed up financially] it seems like there would be some firsthand accounts here given the sample size. But I'll keep trying to find someone and listen to their story if I do.

I only have a LOC not tied to home equity. I've been with the same bank for 30yrs so I don't expect I'd have an issue in another financial crisis, but when I do get a HELOC [just waiting to have enough equity] I'll keep the LOC. They are free until I use them.

[cchrissyy]

I had a business line of credit suddenly frozen then closed during the housing crisis.

It was at Washington Mutual, and it never got un-frozen even when they became Chase.  It was only a $10k credit line, with a balance of like $1k and a couple small checks in the mail, which bounced when they froze things and caused me headaches with whatever suppliers were involved.

Anyway, that's why I wouldn't trust any type of credit line during a banking crisis.

[Retire-Canada]

I had a business line of credit suddenly frozen then closed during the housing crisis.

It was at Washington Mutual, and it never got un-frozen even when they became Chase.  It was only a $10k credit line, with a balance of like $1k and a couple small checks in the mail, which bounced when they froze things and caused me headaches with whatever suppliers were involved.

Anyway, that's why I wouldn't trust any type of credit line during a banking crisis.

So your bank failed and was bought out?

[cchrissyy]

WaMu Is Seized, Sold Off to J.P. Morgan, In Largest Failure in U.S. Banking History

http://www.wsj.com/articles/SB122238415586576687

[aspiringnomad]

I had a business line of credit suddenly frozen then closed during the housing crisis.

It was at Washington Mutual, and it never got un-frozen even when they became Chase.  It was only a $10k credit line, with a balance of like $1k and a couple small checks in the mail, which bounced when they froze things and caused me headaches with whatever suppliers were involved.

Anyway, that's why I wouldn't trust any type of credit line during a banking crisis.

So your bank failed and was bought out?

Right. Don't count on a HELOC if your bank goes belly up. Otherwise, they're pretty solid. Btw, WaMu is the largest bank failure in American history.

[aspiringnomad]

WaMu Is Seized, Sold Off to J.P. Morgan, In Largest Failure in U.S. Banking History

http://www.wsj.com/articles/SB122238415586576687

Saw this just after my post :)

[iluvzbeach]

We got a HELOC on our previous home and never used it until we we were moving across country and then put 25% down on a new place with it. By doing so we didn't have to sell before we bought the new place and we could afford both payments in the event there ended up being overlap between the two transactions (there wasn't.) It worked very well for us.

We haven't obtained a HELOC on the newer place yet, but will at some point just to give us more options.

[Dicey]

I'd love to chat with someone who had their HELOC pulled. If anyone on the forums had that happen and doesn't mind sharing the details please post something. Thanks. :)

Hey Retire Canada, this happened in the US. I have no idea how the HELOC market works in lovely Canada, where they seem to do everything more fiscally responsibly that we do here in 'Murica.

My friend is (oh, so obviously) not mustachian, so no hope of dragging her here. She lives in Phoenix and still has the same house. A little google-fu served up this:

http://www.consumerfinancereport.com/home-equity-loans/find-out-how-home-equity-lines-of-credit-are-being-closed-with-no-warning.htm

http://www.nytimes.com/2008/03/27/business/27loan.html

It's not surprising that this topic didn't garner a ton of attention. Who's going to brag that their HELOC was frozen, reduced or completely revoked? Banks didn't make a big deal out of it, they just sent out thousands of letters and refused to budge. At the same time, thousands of families were losing their houses entirely, which was a much bigger story.


Related to original question:
http://www.aol.com/article/2015/03/09/disaster-looms-home-equity-lines-credit/21150028/

[Retire-Canada]

MMM types share all sorts of personal details on this forum so I can't see a HELOC being affected as a topic they wouldn't be willing to discuss if it happened to them.

[Dicey]

MMM types share all sorts of personal details on this forum so I can't see a HELOC being affected as a topic they wouldn't be willing to discuss if it happened to them.

Uh, nope, that's not what I meant At.All. I was guessing that was why I couldn't find that much about it on the internet. I didn't mention it specifically, but I was also responding to the sort of strange Bigfoot comment further down thread (not you). I suck at the multiple quote thing, so I just quoted the comment that was the best, imo. Sorry if I was unclear.

Whether or not it happened to anyone on this forum doesn't prove that it was any less real. Frankly, as a group who prides themselves on living below their means, I'd guess it happened to far fewer mustachians or if it did, it was a total non-event. I'd even go out on a limb and say that a far lower percentage of mustachians experienced the pain of losing their home than the population at large. For one thing, this forum didn't exist then, so there were no mustachians yet. For another, I believe this happened primarily in the US, which leaves out a big chunk of readers. Finally, a lot of y'all are so damn young (Tone hint: minor envy at your youth, enthusiasm and huge head start towards FIRE not condescension) that you weren't paying any attention when all of this went down. Cramming for finals maybe, but not losing homes you bought that you could no longer afford or having your HELOC pulled and not being able to refinance because you were under water.

Frankly, the skepticism is surprising. I offered it merely as a cautionary HELOC tale; I did not expect disbelief. Believe or not, as you wish. It doesn't change what happened, way back in 2008.

[Retire-Canada]

Whether or not it happened to anyone on this forum doesn't prove that it was any less real. Frankly, as a group who prides themselves on living below their means,

That's exactly who I want hear from and see if any had HELOC problems. I've got a credit score over 800 and compared to most of the other clients at my bank of 30yrs I'm a financial rockstar. So when considering the risk of a HELOC being affected I want to hear from some MMM types that this happened to them. If we can't find any first hand accounts in this forum that tells me something.

As I said above:

Yes. If that actually happened to people [who weren't F'ed up financially] it seems like there would be some firsthand accounts here given the sample size.

If folks barely hanging on financially and with a poor financial track record had HELOC problems I'm not really concerned or interested as they are not my peers nor the people on this forum - for the most part.

If we are going keep throwing out the beware-your-HELOC-may-get-closed advice on this forum it would be good to actually substantiate that risk as more than mythical for the MMM type reading it.

[frugaliknowit]

I had a Heloc with Wamu.  When Chase took it over, they cut the line in half (it was appropriate because the condo had dropped in value significantly).

[cchrissyy]

Retire Canada,  my example (although it was a business line) certainly fits your description. I was a mustacian before it was a word, with a credit score over 800, no change of income, a flawless credit history and score over 800 and no debts whatsoever (not even car or mortgage).
The line was hardly even used. The limit was $10k and I only used it for mailing a physical check and then immediately paid it back down by electronic transfer. 
They froze and closed it as part of an across the board decision, no reason regarding my particular account.

here is another link specific to HELOC

http://www.givemebackmycredit.com/blog/2009/06/jpmorgan-chase-and-wamu-face-m.html


"The suit was brought on behalf of Jeffrey and Jenifer Schulken who allege that their HELOC account was suspended due to a supposed inability to pay the loan.  But the couple - who run their own small business - continued to earn the same amount of money and never missed a payment."

"The lawsuit comes on the heels of two other class actions recently filed against Chase and WAMU alleging the banks have been systematically - and unlawfully - reducing and freezing customer's home equity credit lines. "

[Cpa Cat]

We had one. Last year we wanted to put a home renovation on it and found out it had closed a month earlier after several years of no activity. We didn't bother re-applying for a new one and just paid cash.

I can't comment on how it affected our credit scores. We didn't feel any impact.

[Retire-Canada]

Retire Canada,  my example (although it was a business line) certainly fits your description. I was a mustacian before it was a word, with a credit score over 800, no change of income, a flawless credit history and score over 800 and no debts whatsoever (not even car or mortgage).

My two concerns with applying your example to my own analysis:

1. Was your business LOC secured with a valuable asset in the way a HELOC is?

2. Your bank failed. That's a different risk than I am concerned with. Particularly in Canada as I have more confidence in our banks.

That said one thing I would do as a lesson learned from your example is get a secondary LOC from a different institution so that a challenge to one bank is not an issue to my full credit facility.

[cchrissyy]

1 - not secured

line through a second bank sounds like a good idea, as long as fees not too significant and both banks involved allow it. even then, a large enough banking crisis or housing crisis could impact both lines, so the risk is lowered but not erased.

[tooqk4u22]

I had a Heloc with Wamu.  When Chase took it over, they cut the line in half (it was appropriate because the condo had dropped in value significantly).

This.

While I am sure there were abuses or liberal views by the banks that did this as to what was permissible, for the most part the HELOCs that were cancelled or reduced were done so because the loan agreement includes loan to value or market value clauses so if the property or broader market declines significantly they can do this. Other reasons were because 1st mortgages or taxes weren't current.

You have to remember that HELOCs are 2nd mortgages which mean that if the first mortgage forecloses then the 2nd gets wiped out by any shortfall.  That's why these protections exist.  Back then leading up to the financial crisis you could get a HELOC up to 100% of the value - if you borrowed and values fell it didn't take much to trigger these clauses.

I had a HELOC and it was never cancelled and even got a new one, as well as a mortgage, with no issue at all at the height of the crisis as banks are imploding all around....why? Because I had income that, a high FICO, debt to income well below normal approvable levels, other assets, and combined LTV less than 75%.....oh and I lived in a market that didn't quadruple in short time and subsequently decline by same shortly thereafter (the swing was +/- 15-20% in my market) - these are the markets that saw their HELOCs cancelled (Vegas, much of CA, Arizona, Florida, etc) 

So my guess is that a typical MMMer or even spendypants some of those attributes (most notably actual equity cushion between value and HELOC/1st) will not experience this.

[Retire-Canada]

1 - not secured

line through a second bank sounds like a good idea, as long as fees not too significant and both banks involved allow it. even then, a large enough banking crisis or housing crisis could impact both lines, so the risk is lowered but not erased.

An unsecured LOC is not very comparable to a HELOC. It's far far riskier for the lender. I suspect that and the typical credit score/financial kung fu of MMMers is why we can't find a single first person account of a HELOC being affected.

My current LOC is free. I would not pay for a LOC. The interest on the account when used is the payment so paying just to have it would be crazy to me. You can have as many LOCs or credit cards or other credit vehicles as your credit score/income/assets will support. So far banks have been tripping over themselves to give me credit so I don't see that as an issue.

Personally my COL is relatively low so I could live off $40K for 2yrs if push came to shove. I don't need $400K of credit to be my emergency fund.

If two major banks in Canada [we only have 4 or 5] are so screwed up they deny credit to their best customers with sterling credit scores and massive assets than it's pretty much zombie apocalypse time up here.

[skeptic]

yes. Haven't touched it yet (4 years). As tempting as paying interest is for us, somehow we've resisted...

Nice to know it's there if problems arise.

[charis]

Small HELOC here (25K) and modest ER (13K).  Have never touched the HELOC (or the ER for that matter). 

[Stachetastic]

We opened one last year when we used the majority of our cash reserves to pay off student loans. The HELOC has 4.5% interest rate, should we use it, and the SL had 7%. We have never used it yet, but it's nice to know it's there. We are planning a kitchen remodel (still gathering figures) and I know it will be tempting to use the HELOC to just get it done rather than wait another year or more to save up. Gonna try to resist it, though.

[charis]

I totally forgot that we DID use the HELOC of pay off a student loan after maxing our interest deduction for the year.   It slipped my mind because we paid it as quickly as we otherwise planned, but at a lower interest rate (4% v 5.75%).

[Prairie Stash]

A advantage to HELOC (in Canada) is that I can get cheaper house insurance if I drop it as long as my house is paid off. When you still have a mortgage this doesn't apply. Unfortunately mine has a discharge fee of $300.

Check with your insurance agency if the will give you a discount once you pay off the mortgage. HELOC's void the discount here.So if its never used it should be a LOC instead. Similar EF possibilities (at a higher interest rate) but lower hidden costs.

I invested on margin for awhile, in 2007 I learned my lesson when they called me out, apparently a big stock drop and margin investing is a bad combo. I used my HELOC to smooth things out while the market rebounded.

[FIRE me]

I was wondering how many people have signed up for a HELOC just for the security of knowing that if worst comes to worst the money is there, but if the world didn't end you would really never need the credit. Currently I have 70k in my emergency fund and was thinking about making a 20k payment on my mortgage balance.  By doing this I'll save over $4,000 in interest over the remaining loan term.  I did a 11 year mortgage originally with a rate of 2.6% and am trying to get it paid off in 3 to 5 years.  Currently it will be paid off in 7.9 years if I just pay it out.  I also have $250,000 of equity on the home so I know I wouldn't have an issue getting a HELOC for say $50,000.

If I did make the 20k payment I'd probably want to get a HELOC just to sleep better at night.  I know I'm weird, but I like having a large cash cushion since we are a single income household.  My job is as steady as they come, but I'm definitely over paid and if worst comes to worst I'd probably take a 30k to 40k pay cut in salary and benefits if I ever lost my current gig.  That's why I like having a good emergency fund.  So who has a HELOC just to sleep at night?

In 2007 I bought a repo house, priced right. The bank appraised it for 130% of the purchase price, so they required no down payment (I did have money saved), no PMI, and the bank offered me a HELOC on the day I closed on the house. Believe it or not, this was through a respectable brick and mortar regional bank, BB&T.

I paid a damn $50 annual fee on that HELOC for six years before I figured out that it was money wasted. I got the HELOC thinking it could be used as a last resort if all my other options ever ran out.

I never drew a penny out of it. I decided that $300 was more than enough wasted on annual fees so I closed it and of course I have not missed it.

[AMandM]

I paid a damn $50 annual fee on that HELOC for six years before I figured out that it was money wasted. I got the HELOC thinking it could be used as a last resort if all my other options ever ran out.

This.  We got a HELOC just before a one-year move overseas, to have an easy source of US dollars while we were being paid in Euros, in case the international transfers were too slow.  We didn't end up using it, but we had to pay $50 a year for three years or they would retroactively charge us closing costs. >:P

[ToTheMoon]

We have two.  An unsecured LOC for about $25K that we keep as an emergency fund, and a secured LOC that we invest with (Smith Maneuver in Canada.)

I should probably ask my banker if our unsecured LOC will ever be shut down since we haven't touched it in the 10+ years since they extended it to us.  Can't hurt to have it in writing!

[socalteacher]

I'd love to chat with someone who had their HELOC pulled. If anyone on the forums had that happen and doesn't mind sharing the details please post something. Thanks. :)

I had a HELOC that was used to purchase the house back in 2005 in order to avoid mortgage insurance. We paid it off in about 2 years and kept it as an emergency fund. When 2008 hit, Wells Fargo canceled it sometime in 2009 I think.

[Villanelle]

I'd love to chat with someone who had their HELOC pulled. If anyone on the forums had that happen and doesn't mind sharing the details please post something. Thanks. :)

I had a HELOC that was used to purchase the house back in 2005 in order to avoid mortgage insurance. We paid it off in about 2 years and kept it as an emergency fund. When 2008 hit, Wells Fargo canceled it sometime in 2009 I think.

If you don't mind sharing, what was the amount of HELOC available vs the equity in your home?  We have a HELOC and I worry pretty much zero about it being closed because it is far, far less than our actual equity.  My impression was that usually when they are closed it is because the numbers are such that they are no longer tapping in to actual equity, or it's getting close that point.  Our house would have to drop in value by about 70-75% before our current HELOC limit is less than our equity.  If that happens, we are all pretty much utterly screwed so it will be a moot point. 

As for the OP, our HELOC was just sitting unused for a long time.  Then essentially paid of our bank mortgage with a loan (including an official lien, set interest rate, etc.) from my parents.  They didn't want to liquidate quite as much as we owed, so we used our HELOC  for the rest (and it's 2.6%!! rate at the time, though it's now adjusted to 2.85, but we've paid it off).  The balance is back to zero, so it's not just sitting again and waiting for a need.

[socalteacher]

If you don't mind sharing, what was the amount of HELOC available vs the equity in your home?


The HELOC was for 53K. The equity depended on what you valued the house at during that time. Appraisals were all over the place due to foreclosures and how appraisers ran comps etc. The way values were dropping I pretty much saw it coming and even though I had equity still in the home I don't blame them for taking the HELOC off the table. I had paid over 150K off on the house but again it is all about the value at the time.

[Retire-Canada]

I had a HELOC that was used to purchase the house back in 2005 in order to avoid mortgage insurance. We paid it off in about 2 years and kept it as an emergency fund. When 2008 hit, Wells Fargo canceled it sometime in 2009 I think.

Thanks for sharing that! :)

[CupcakeGuru]

We bought our house in 2004 with a 50K HELOC. Paid it off by 2007. In late 2008 or early 2009, Bank of America sent a letter cancelling out HELOC. I am glad we didn't need it at the time, but I will not count on a HELOC again for my emergency fund because of this.

[Retire-Canada]

We bought our house in 2004 with a 50K HELOC. Paid it off by 2007. In late 2008 or early 2009, Bank of America sent a letter cancelling out HELOC. I am glad we didn't need it at the time, but I will not count on a HELOC again for my emergency fund because of this.

Thanks for sharing. Can you provide some details around how much equity you had and how big the HELOC was? As well as any info the BoA gave when they cancelled it?

[CupcakeGuru]

We bought our house in 2004 with a 50K HELOC. Paid it off by 2007. In late 2008 or early 2009, Bank of America sent a letter cancelling out HELOC. I am glad we didn't need it at the time, but I will not count on a HELOC again for my emergency fund because of this.

Thanks for sharing. Can you provide some details around how much equity you had and how big the HELOC was? As well as any info the BoA gave when they cancelled it?

The HELOC was 50k and we had around 65-70k equity. I don't remember the exact wording, but the letter from BOA was just a one page letter saying the HELOC has been cancelled. It was maybe 2 or 3 sentences long.