Author Topic: HELOC - good idea?  (Read 3385 times)

sj16

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HELOC - good idea?
« on: February 29, 2016, 02:21:19 PM »
Hi everyone,
I wanted to get your thoughts, the fiscally responsible and interested in building wealth community :)

We have a good amount of equity on our house. Our only debt is the mortgage and we have our emergency fund. In such general case, is it a good idea/positive thing to have a HELOC based on our available equity? I don't foresee any big expense in the future and wouldn't want to use the HELOC either but have been hearing that it's a good idea to have it just in case. (especially if there is no fee/costs related to opening and keeping it).

What's your personal take on it? Please share and thank you!
« Last Edit: February 29, 2016, 03:15:34 PM by sj16 »

Midwest

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Re: HELOC - good idea?
« Reply #1 on: February 29, 2016, 02:23:41 PM »
Personally, I don't know how you can go wrong with a heloc if you are good with money.  Increased liquidity for free.  We use ours to purchase flips.  No cost when not being used.

bobechs

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Re: HELOC - good idea?
« Reply #2 on: February 29, 2016, 02:45:52 PM »
I don't have one, but I'd hazard to say its value could be estimated as the difference in value derived from holding an ill-liquid investment, as compared to an equal amount in a liquid investment held as an emergency fund.

Subtract the cost of the HELOC (zero, if in fact it is zero) and render everything to NPV.

StacheInAFlash

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Re: HELOC - good idea?
« Reply #3 on: February 29, 2016, 02:47:07 PM »
We recently got a one added after we did a refi. It didn't cost anything since we were reusing the refi appraisal, and then the credit union ended up waiving the other fees as a special promotion even though we were ok with paying upwards of $200 to do it. We haven't used it yet, and have no plans to unless an emergency comes up. We have no emergency savings as everything extra goes to pre-tax retirement accounts, so we would put the big emergency purchase on the HELOC and then adjust our retirement withholdings for however long it took to pay off the HELOC before bumping them back up. Springy debt, as MMM calls it!

No reason not to do it as long as you're not the type to be tempted to buy 4 jet skis and a new pool randomly...which it sounds like you aren't!.

desertadapted

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Re: HELOC - good idea?
« Reply #4 on: February 29, 2016, 09:31:17 PM »
In my personal experience, after the introductory free year, the bank started charging a fee ($75 to $150 a year, can't remember). That was fine as a backup for a year or two during a personal transition period. But once we had a feeling of complete stability, we dropped it.  If it had been free in perpetuity we'd still have it (because why not).  Mind the fees. 

Mikila

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Re: HELOC - good idea?
« Reply #5 on: March 01, 2016, 05:56:09 AM »
It's not for me.  I am stable enough not to need it.  If I did need cash, my house would be the last place I would go.  I will always need a place to live, not going to gamble with it. 

I value the security of always having a place to live ( for cheap).  If you value the option to spend your equity, go for it. 

Sent from my XT1526 using Tapatalk


Retire-Canada

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Re: HELOC - good idea?
« Reply #6 on: March 01, 2016, 06:50:07 AM »
I have a $30K LOC not based on my home equity. It costs nothing if I don't use it and it provides a nice buffer of easy to access low cost money that's in excess of 1yr's minimal expenses.

Hard to see what not to like about a LOC or a HELOC.

Because of my LOC I hold $0 as an emergency fund which means I have more money working for me in my investment portfolio. So that LOC actually makes me money. :)

dcozad999

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Re: HELOC - good idea?
« Reply #7 on: March 01, 2016, 09:04:35 AM »
I have a $30K LOC not based on my home equity. It costs nothing if I don't use it and it provides a nice buffer of easy to access low cost money that's in excess of 1yr's minimal expenses.

Hard to see what not to like about a LOC or a HELOC.

Because of my LOC I hold $0 as an emergency fund which means I have more money working for me in my investment portfolio. So that LOC actually makes me money. :)



This ^^^

ShoulderThingThatGoesUp

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Re: HELOC - good idea?
« Reply #8 on: March 01, 2016, 10:37:05 AM »
We just went through an application with Wells Fargo. (Apparently I have a credit score just over 800. Cool.)

Here's why we withdrew the application. The bank can end the loan if you lose your job or if your house loses significant value. The Venn diagram of when I'd want to use it and when it would be withdrawn is pretty much a circle: need to pay for a few months of expenses until I get a new job, or I discover such a big problem in my house that I can't cash-flow it.

Bonus: when I called, the CSR told me "those disclosures aren't really real, you know." Yeah, that makes me want to do business with you, dude!

StacheInAFlash

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Re: HELOC - good idea?
« Reply #9 on: March 01, 2016, 11:55:26 AM »
We just went through an application with Wells Fargo. (Apparently I have a credit score just over 800. Cool.)

Here's why we withdrew the application. The bank can end the loan if you lose your job or if your house loses significant value. The Venn diagram of when I'd want to use it and when it would be withdrawn is pretty much a circle: need to pay for a few months of expenses until I get a new job, or I discover such a big problem in my house that I can't cash-flow it.

Bonus: when I called, the CSR told me "those disclosures aren't really real, you know." Yeah, that makes me want to do business with you, dude!

Well, that's why you don't deal with Wells Fargo or other for-profit lending institutions--everyone knows that, don't they?. Credit Union for the win!

In all seriousness though, yes, I believe they do reserve the right to freeze it, but I don't think they will (or can?) do that if you lose your job, as how would they even know?? They aren't asking you for pay stubs every month to prove you're still employed.  I think their bigger concern (and reason for that disclaimer) is another housing bubble burst that makes it obvious to them that equity has disappeared from everyone's home. They definitely don't want you maxing out your entire HELOC at that time, when they know that that equity doesn't exist anymore. But again, I don't think this is a something they are looking at with individual homes...they aren't rerunning market analyses or ordering appraisals every year on your house to double check the value. A big problem discovered in your home that needs the HELOC funds is not going to be on the bank's radar at all. How would they know your foundation now needs $40k of work done? They don't.

And even if they can pull it from you when you lose your job or house loses value, so what? It's free to have the HELOC once it is opened (well...maybe not at Wells Fargo), so you can still take free advantage of the HELOC benefits up until they decide to yank it away from you if that is what they want to do. And even then, I assume you'd still have another 5 years to pay off any balance you have.

robartsd

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Re: HELOC - good idea?
« Reply #10 on: March 01, 2016, 12:27:00 PM »
We just went through an application with Wells Fargo. (Apparently I have a credit score just over 800. Cool.)

Here's why we withdrew the application. The bank can end the loan if you lose your job or if your house loses significant value. The Venn diagram of when I'd want to use it and when it would be withdrawn is pretty much a circle: need to pay for a few months of expenses until I get a new job, or I discover such a big problem in my house that I can't cash-flow it.

Bonus: when I called, the CSR told me "those disclosures aren't really real, you know." Yeah, that makes me want to do business with you, dude!
If you use your HELOC to fix a big problem with your house, then your house no longer has the big problem and has no longer lost significant value. They won't know you lost a job until you tell them or start missing payments.

Retire-Canada

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Re: HELOC - good idea?
« Reply #11 on: March 01, 2016, 01:27:18 PM »
They won't know you lost a job until you tell them or start missing payments.

^^ this. It's not something to worry about in practice.

If you want to remove one risk just get a LOC that is not home equity based and then your home value is irrelevant. Your interest rate will be a bit higher, but if it's an emergency fund tool that's not super important as it will likely stay at zero balance.