Prefire Checklist - Is HELOC necessary?

[wildatheart]

Hello Fellow Moustachians ,

My FIRE date is 3/20/2020. The preFire checklist tells me to open a HELOC before I quit my job as its easier to get loans when you have a job. Obviously, it is easier, but I've spent so much of my life getting rid of debt, is that really something I'd want to pay the fees to do?
I've calculated enough liquidity to get me through until 59 1/2 (I'm 53).

Your thoughts are welcome!
Wildatheart

[seattlecyclone]

Totally optional. I've never had one, don't plan to get one, and feel perfectly fine with this.

[Acastus]

I  put HELOC in the nice to have category. It will be cheaper than car loan, personal loan, or credit cards if you need a  loan at some future date. IF you are FI, it is unlikely you will need a loan. Medical expenses could mess up anyone's budget, though.

[phildonnia]

As I understand the concept, FI pretty much the opposite of needing a HELOC.  We didn't work to become FI so that we could go borrow money.  I certainly don't ever plan to get one.

That feeling you get remembering your loans of the past --it's trying to tell you something.

[RedmondStash]

I don't believe HELOCs necessarily require fees up front; that may depend on the lender. Not sure about fees to close them. To get the best rates, they do require you to borrow some money, and wait a specified amount of time to pay it back, like a 3 months, or a year or so.

So you could take out a HELOC, borrow money, and either invest it or pay it back after the initial period is over. Or you could take out a higher-rate HELOC and not actually borrow money at all. Having a HELOC isn't the same as borrowing against it.

They're not necessary. But they're nice to have as a backup, like if you need a large chunk of change for something but you don't want to sell investments and incur a greater tax burden that year. They give you greater flexibility in planning your financial strategy over a span of years.

If you don't want one, you don't need one.

[Greystache]

I think it depends on your asset allocation and how you have your money invested. If you are 100% invested in equities and have little or no cash on hand, then a HELOC is good to have in lieu of an emergency fund.  In my case, I am not comfortable with that situation and I built a pretty substantial pile of cash and near-cash assets that I could draw on if a large expense came up.  I understand that this may not be the best way to grow my stash, but it is what works for me.

[Metalcat]

It's not necessary nor unnecessary, it's neither bad nor good.
It's a tool available to you that either benefits you or doesn't.

Look at your situation and decide if a HELOC provides you any benefits or more importantly, *could* provide you any benefits in the future.

I'm in Canada where personal LOCs seem a lot more common and we don't pay to set them up, the bank just sends us a letter or an email that they're going to give us one and we can be like "sure, why not?"

So I can't really comment on the pros and cons of a HELOC where you live, but between all of our personal and professional LOCs, we have a few hundred thousand in low interest revolving credit available.

[rantk81]

There are some companies that offer HELOCs without any initial fees (they even pay for the appraisal), and no annual fees.

I got one through Bank of America, and it didn't cost me one cent.  If I close the account within 3 years, they said I'd have to pay back the appraisal and legal fees, though.

The interest rate isn't the best, but I don't plan on having to use it anyway, and it was 100% "free" for me, so I figured "why not"