Open HELOC just in case?

BMEPhDinCO · #1 (**permalink**) 06-26-2011, 09:29 AM

Hi everyone,

So my bank (USAA) is offering a HELOC for 4.49% variable APR right now for $125k pre-approved. You only pay interest on the amount used, there are no fees, and you can pre-pay.

Now, we do have plenty of savings (6mo EF, car fund, house fund, medical fund, etc) but I was wondering, would it be problematic to open a HELCO and not use it but have it available just in case?

My husband and I are both in grad school right now but he's set to finish before me and, with a DMA in music comp, jobs might not be easy to find right away....so I wonder if we should get a backup in place now, while we both have some kind of income or if that's overkill? It might be another 9mo-a year for me to finish after him, and he might not be able to find a good job in that time...

Thanks!

NJDebbie · #2 (**permalink**) 06-26-2011, 10:21 AM

One thing to take into consideration: you will have to increase your homeowner's insurance policy to reflect the amount of HELOC. Keeping that in mind, if it gives you a sence of security you'd have to do what's best for your family.

maat55 · #3 (**permalink**) 06-26-2011, 10:51 AM

IMO, HELOC's and credit cards only postpone the recognition and proper dealing with of a debt/spending problem. In doing this, you might not cut spending back at the expense of your home equity.

You are basically wanting to use a HELOC as a possible student loan. Are you willing to subsidize your lifestyle at the cost of your home equity?

disneysteve · #4 (**permalink**) 06-26-2011, 04:03 PM

I agree with maat55. While there is no particular harm in opening a line of credit and not using it, making debt your back up plan really isn't a great plan. How are you supporting yourselves now with both of you in school? You say that you have an emergency fund and various other savings, plus you own a home so there are mortgage payments and other living expenses that you are covering, so there must be some income coming in to allow you to do that. What do you anticipate changing after he finishes school? I would think he will have more time to work, even if it isn't in his field of study, so income shouldn't really be an issue.

cschin4 · #5 (**permalink**) 06-26-2011, 11:00 PM

Our home is paid off but i maintain an open HELOC sort of as an insurance policy. There is no fee and we haven't used it. But, why not have credit available as an option?

disneysteve · #6 (**permalink**) 06-27-2011, 05:45 AM

Quote:

Originally Posted by cschin4

Our home is paid off but i maintain an open HELOC sort of as an insurance policy. There is no fee and we haven't used it. But, why not have credit available as an option?

An option for what? I have an emergency fund. I have retirement savings. I have college savings. I have other liquid savings not specifically earmarked for anything. I have life insurance and disability insurance. And if absolutely necessary in a catastrophe, I have credit cards. I just can't think of any reason to need another open line of credit, particularly one secured by our home (as opposed to the credit cards which are unsecured).

bjl584 · #7 (**permalink**) 06-27-2011, 07:01 AM

It sounds like you don't need it, so I would vote no on opening up the HELOC.

cschin4 · #8 (**permalink**) 06-27-2011, 07:59 AM

Quote:

Originally Posted by disneysteve

An option for what? I have an emergency fund. I have retirement savings. I have college savings. I have other liquid savings not specifically earmarked for anything. I have life insurance and disability insurance. And if absolutely necessary in a catastrophe, I have credit cards. I just can't think of any reason to need another open line of credit, particularly one secured by our home (as opposed to the credit cards which are unsecured).

To have quicker access to a larger volume of cash. And, to lay to rest some of the arguements about why someone shouldn't pay off their mortgage. The point is typically made that one has much less liquidity if the home is paid off. So, that is a reasonable point. I think the HELOC answers this problem nicely, it is open and we have never had a need or reason to use it. But, circumstances of life can mount quickly like a thief in the night kind of thing. Kind of like having a credit limit but that doesn't mean you charge $10K on your cc every month.

BMEPhDinCO · #9 (**permalink**) 06-27-2011, 10:58 AM

Hmm...seems to be that most people think it's not useful. My husband and I do have stipends, and we get help from his parents, so we are able to cover the bills each month. We do have a 6 mo EF, enough in savings to cover our school expenses through finishing (assuming we do in time!) and various other savings accounts. I have 3 CC with around $45k available on them, and DH has another $14k available through his CC. We also have around $15k in Roths that we could tap.

However, I would never want to do a cash advance through a CC or tap my Roth for an emergency beyond savings - thus, my question regarding the HELCO. As cschin4 said, it's to have quick access to cash but hopefully never used. As we currently only owe ~$97k and the house was valued for taxes at $155k, I just figured it would be a good option to have, in addition to my other backup stuff.

But it sounds like its more complicated than I thought it would be, so probably it's best not to open one at this moment in time.

Thanks y'all!

BuckyBadger · #10 (**permalink**) 06-27-2011, 12:38 PM

I have a HELOC for "just in case." I don't think it's a bad thing as long as you are responsible about it. I'd go for it.

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