I Think Everyone Should Look Into A Home Equity Line Of Credit

[Singuy]

I feel that HELOCs are one of the best things since sliced bread..and here are my reasons why!

1. It usually cost nothing to open. A lot of banks will pay for your closing cost(if the line is open for x amount of years..usually 3).

2. You don't need to have a balance (which means you pay NO interest), but you can tap into it whenever you want! This will save your house!
-Say you lost your job and your EF is drying up, tap into your Heloc, and use that money to pay for your mortgage to prevent you from losing the house until you can find yourself a job.

3. Low interest, use it to your advantage...either you want to pay off that CC bill or you need to do some debt leveraging, the interest beats trading options(not for the faint of heart). I have used HELOCs to pay cash for fixer uppers, amplifying my returns.

4. It's super fast to tap into, just go to the bank and they will hand you a check or wire it to you instantly!

5. The interest you pay is tax deductible like a mortgage interest..not really a big selling point but it's still something.

Of course this can only work during a housing boom..not a housing crisis.

So if it's free to open one up, I really see no downside to having one on the side for a rainy day(or for a golden opportunity). One can argue that you can lose your house if you are not responsible..so perhaps you shouldn't touch this if you are bad with money. On the flip side, don't treat HELOCs as an easy way to get your kitchen remodeled..yes that may be the initial purpose but I feel like that's using it the wrong way!

[tripods68]

When I worked for a bank, we used to send email/marketing campaign to our clients.

The Headlines we used:, "Why you should take out a HOME EQUITY LOAN.....Low rates, and its tax deductible".

Then the market CRASHED!

Oooppsss

[disneysteve]

There are so many things wrong with this post I don't even know where to begin.

[Singuy]

When I worked for a bank, we used to send email/marketing campaign to our clients.

The Headlines we used:, "Why you should take out a HOME EQUITY LOAN.....Low rates, and its tax deductible".

Then the market CRASHED!

Oooppsss

Home equity loan is different than home equity line of credit. Massively different.

You are mandatory to take out the home equity loan and you must pay interest on that loan instantly!

Line of credit is different, you can keep it as 0 as long as you want and pays NO interest on it.

So what happens lets say, you bought your house for 400k, and it's worth 500k today..you take out a line of credit today of 100k and keep balance as 0.

What happens if the housing market crash and your house is now worth 300k? You go to the bank, take out that 100k of credit and foreclose on your house. That's right..you just made yourself 100k..hedged against a housing crisis!~!~

Also a bank will foreclose on you if you paid off 99% of the house or 20% off the house...it doesn't matter to them..you get to lose all your principle. NOT IF YOU OPEN UP A LINE OF CREDIT! You can take the principle you paid into it and RUN! It's kind of shady but it's not illegal. Also I'm not saying this is the purpose of the line of credit, but it's definitely a protection for yourself if you use it as such.

[tripods68]

Singuy,

What's really the point, validation from this forum that's its okay to take a home equity loan.

Maybe you should go ahead and take out $500K equity and tell us about it how well your investments are doing.

[Singuy]

Singuy,

What's really the point, validation from this forum that's its okay to take a home equity loan.

Maybe you should go ahead and take out $500K equity and tell us about it how well your investments are doing.

LoL

1. There's nothing to invest in
2. I don't need any validation because I do just fine myself

I have 250k on tap and I'll always keep a line open because it cost me 0 dollars and 0 interest. It's a gigantic credit card with a 3% interest rate...if you guys think this is a bad idea then provide me with reasons why.

From my experience with Helocs is that they are awesome. I can't find a reason why NOT to open one.

[tripods68]

Steve, please close this THREAD.

Thank you!

[disneysteve]

I can't find a reason why NOT to open one.

I don't open accounts I don't need. I have absolutely no need for access to more debt. If I lose my job, I have an emergency fund and a substantial investment portfolio. I would tap all of that before resorting to taking on debt to get by (which would never happen because I'd get a job long before that).

Maybe if you're just starting out and don't have any savings, but in that case, you probably wouldn't have much home equity either.

The only time I think a home equity LOAN makes sense is to pay off higher interest debt. We've actually done that ourselves back when interest rates were a lot higher. We were able to pay down some student loans and a car loan at a much lower rate by using a HEL. I wouldn't have gone with a HELOC because of the variable rate.

[GoodSteward]

I can't believe some of what I just read. Taking the money and running with a foreclosure.....

This reminds me of a report I read online where someone used suicide as a selling tactic for a life insurance policy. The company he sold for happen to issue a 70% payout of face value 2 years after you start the policy, for a suicide. He actually tried to use that as a selling point...."if you decided to kill yourself, your family would be ok!"

[disneysteve]

lets say, you bought your house for 400k, and it's worth 500k today..you take out a line of credit today of 100k and keep balance as 0.

What happens if the housing market crash and your house is now worth 300k? You go to the bank, take out that 100k of credit

Except that if your home value dropped from 500K to 300K, the bank would probably freeze your line of credit, not let you walk in and borrow against equity that you no longer have. This happened a lot during the housing crisis.

The bank can also lower your credit line if it sees fit based on market conditions.

[Singuy]

I don't open accounts I don't need. I have absolutely no need for access to more debt. If I lose my job, I have an emergency fund and a substantial investment portfolio. I would tap all of that before resorting to taking on debt to get by (which would never happen because I'd get a job long before that).

Maybe if you're just starting out and don't have any savings, but in that case, you probably wouldn't have much home equity either.

The only time I think a home equity LOAN makes sense is to pay off higher interest debt. We've actually done that ourselves back when interest rates were a lot higher. We were able to pay down some student loans and a car loan at a much lower rate by using a HEL. I wouldn't have gone with a HELOC because of the variable rate.

Yes, that's you..you will not need a Heloc to prevent a foreclosure..the only reason why someone like you will want a heloc is for investment purposes.

I'm sure you have read that the majority of Americans have MOST of their net worth in their house.

http://www.fool.com/investing/general/2015/05/17/americans-average-net-worth-by-age-how-do-you-comp.aspx

So if people are living paycheck to paycheck, they can't really tap into their retirement account and their EF is abysmal...I feel like Heloc is their only saving grace to prevent a foreclosure living on the edge like that.

The argument on the flip side is..these people are spenders and will most likely squander the Heloc if they have it.

[tripods68]

Except that if your home value dropped from 500K to 300K, the bank would probably freeze your line of credit, not let you walk in and borrow against equity that you no longer have. This happened a lot during the housing crisis.

The bank can also lower your credit line if it sees fit based on market conditions.

Some Banks can also eliminate your home equity if you don't use it within certain period.

Home equity is great for small business owner to meet payroll. Other than that, consumer shouldn't use their home like ATM machine.

[Singuy]

Except that if your home value dropped from 500K to 300K, the bank would probably freeze your line of credit, not let you walk in and borrow against equity that you no longer have. This happened a lot during the housing crisis.

The bank can also lower your credit line if it sees fit based on market conditions.

I don't think they can do that because the initial approved line is based on the approved appraisal. In order for them to do that, they have to get a new appraisal and do the entire line all over again.

[disneysteve]

I don't think they can do that because the initial approved line is based on the approved appraisal. In order for them to do that, they have to get a new appraisal and do the entire line all over again.

From one article (not dated but not hard to figure out when it's from):
Many lenders are freezing home equity lines of credit, or HELOCs, even those that remain unused. Declining home values and an uncertain economic outlook are making financial institutions tighten their purse strings.

In fact, about 79% of banks surveyed recently by the Federal Reserve are tightening lending standards on HELOCs. If you still have money available in a line of credit but home prices in your area have declined, your lender may be ready to pull the plug on your HELOC.

From another site:
Your lender may freeze or lower your line of credit if your home's value has a significant drop.

From Realtor.com:
Your HELOC’s credit line is not a guarantee, even if you already have it. If your house value plummets and you lose equity, your lender has the right to modify the agreement to adjust for the drop in value. And if your credit score drops significantly enough, the lender can reduce your credit limit.

The bank can change the agreement if conditions change.
The bank can freeze or cut back your HELOC amount.

So you might want to rethink that whole "steal the non-existent equity and let them have the house" plan of yours.

[disneysteve]

So if people are living paycheck to paycheck, they can't really tap into their retirement account and their EF is abysmal...I feel like Heloc is their only saving grace to prevent a foreclosure living on the edge like that.

If the only way to "save" your home is to borrow against it, you are essentially trying to put out a fire by spraying it with gasoline.