I just hit a small snag in our near-term financial plan as part of quitting my job to go back to school in a few months.
As an emergency buffer, I planned to open a HELOC that we had no intention to use but that could provide a backstop if anything unexpected happened over the next 4 years while I'm in school. It turns out, however, that no bank will give us a HELOC as it stands because we have a 2nd lien on our home from the down payment assistance that we used to purchase the home in the first place through our local housing program.
At the time, I thought it was an incredible deal, rather than putting down the 3.5%, we qualified for a $3,000 down payment assistance loan with 0% interest for 10 years with a 3 year deferral. We've been in no rush to pay it off because of the 0%, taking the deferral and paying the minimum $25/month since the deferral ended.
If we want to be able to open a HELOC we either need to a) pay off the loan in full, currently $2,800, or 2) roll it into the HELOC that we would open meaning that $2,800 which is currently 0% interest would take on the HELOC rate (best I've found so far is prime rate, 3.25% I believe).
Is it worth it to open an emergency HELOC by either forking over that money now and reduce our emergency fund at the time I start school from ~10,000 to ~$7,000 or rolling into a brand new HELOC and pay on it at the going interest rate (variable, updated quarterly)?
My feeling is no, but I'm wondering if anybody thinks otherwise and could convince me it's a good idea.