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

[sv2007]

Everyone is so black and white here. You point out some advantages of a product that literally have no disadvantages unless you abuse it and all of a sudden people jump down your throat.

At least it's boglehead approved.

I think most here don't realize that saving money is the first part, then it must be put to work for you. The working part is actually much harder than saving, but I think many here don't realize that.

I guess come folks compare themseves against the world, then life is easy as their 1-day income can equal the weekly income of another part of the world. But they aren't there, they are here. Compare against the successful; millionaires? multimillionaires? then that's the target. Here is truely the land of opportunity, the American dream is alive and well. Only limited by one's ability (and that includes putting money to work for you).

[DaveInPgh]

I think most here don't realize that saving money is the first part, then it must be put to work for you. The working part is actually much harder than saving, but I think many here don't realize that.

I guess come folks compare themseves against the world, then life is easy as their 1-day income can equal the weekly income of another part of the world. But they aren't there, they are here. Compare against the successful; millionaires? multimillionaires? then that's the target. Here is truely the land of opportunity, the American dream is alive and well. Only limited by one's ability (and that includes putting money to work for you).

[corn18]

I think most here don't realize that saving money is the first part, then it must be put to work for you. The working part is actually much harder than saving, but I think many here don't realize that.

I guess come folks compare themseves against the world, then life is easy as their 1-day income can equal the weekly income of another part of the world. But they aren't there, they are here. Compare against the successful; millionaires? multimillionaires? then that's the target. Here is truely the land of opportunity, the American dream is alive and well. Only limited by one's ability (and that includes putting money to work for you).

There are plenty of investing advise forums. This is a savings advice forum, so I think the focus on saving is quite appropriate.

[rennigade]

I think most here don't realize that saving money is the first part, then it must be put to work for you. The working part is actually much harder than saving, but I think many here don't realize that.

I guess come folks compare themseves against the world, then life is easy as their 1-day income can equal the weekly income of another part of the world. But they aren't there, they are here. Compare against the successful; millionaires? multimillionaires? then that's the target. Here is truely the land of opportunity, the American dream is alive and well. Only limited by one's ability (and that includes putting money to work for you).

Whatever drugs you're on I want some.

[disneysteve]

Disagree. All assets are my bank.

That's really an important comment. All of your assets really are your "bank". When there's something you need money for, you should look at all of your options and choose the source of funds that is most advantageous to draw from. In some cases, that may well be your home equity.

[LivingAlmostLarge]

I think it's wise to have open if free. I also when we started out had a heloc as a primary mortgage instead of a traditional loan because we used it to pay down faster when e could and tap when we needed it. We had no effect because of it.

But I dont think most people, probably everyone on here could but not the average Joe would be so responsible or understand the purpose of what we did. When we did it we were trying to maximize cash flow and risk for getting ahead and it worked. It is not for people unwilling to take the risk or time the market.

As it is my DH and I are pretty risky for investing as well but I cant seem to get ahead in real estate. Probably because I only look local and am uncomfortable with the idea of getting into long distance landlord ingredients which is needed to really generate returns for us to. Make it worth investing

[Singuy]

The tone of this thread definitely changed from "burn it with fire!" to.."it can be a useful tool"..

[Nutria]

The tone of this thread definitely changed from "burn it with fire!" to.."it can be a useful tool"..

ISTM that many confused home equity loan with home equity line of credit.

[disneysteve]

ISTM that many confused home equity loan with home equity line of credit.

There is a big difference. There are good reasons why when we needed money, we took a HEL and not a HELOC.

If you need a set amount of money, a home equity loan is generally the better way to go.

If you want a back-up emergency fund, which I don't advise, then the HELOC would be the one you want.

[Petunia 100]

The tone of this thread definitely changed from "burn it with fire!" to.."it can be a useful tool"..

Probably because your assertion changed drastically. First it was "You can use a Heloc to cash out equity you don't have and skip away, because once the bank opens your Heloc they have no choice but to lend you the money regardless of your current lack of equity or ability to pay! Or if you are living paycheck to paycheck and drowning in debt, a Heloc is your solution!" And now it's "A Heloc can be a useful tool".

A Heloc certainly can be a useful tool in the right circumstances. However, the scenarios you originally presented are not the right circumstances.

[Singuy]

Probably because your assertion changed drastically. First it was "You can use a Heloc to cash out equity you don't have and skip away, because once the bank opens your Heloc they have no choice but to lend you the money regardless of your current lack of equity or ability to pay! Or if you are living paycheck to paycheck and drowning in debt, a Heloc is your solution!" And now it's "A Heloc can be a useful tool".

A Heloc certainly can be a useful tool in the right circumstances. However, the scenarios you originally presented are not the right circumstances.

Those are extreme scenarios in which HELOC can be used to bail someone out, despite if you are a good or a poor savers. Just because someone is a good saver doesn't mean sh#$ doesn't happen in life.

I changed only one thing, and that is I am not recommending this product to anyone who are looking for free cash to squander (not even a change because I never advertised it in this fashion..it was more of a disclaimer)..which is apparently why so many people on this board are so against HELOC. The tone changed because my initial post had a positive reaction on boglehead..in which everyone here was expecting a blood bath.

You guys are focusing too much on how one can abuse this product and not really looking at why it's really awesome when used in a responsible fashion. I'm surprise a lot of the same people who hates HELOCs doesn't mind reward credit cards..which is way more dangerous if abused (spend $4,000 in the first 3 months and get 40k points!). It's practically a payday loan in your pocket.

[disneysteve]

I'm surprise a lot of the same people who hates HELOCs doesn't mind reward credit cards..which is way more dangerous if abused. It's practically a payday loan in your pocket.

Please explain to us how a HELOC, which is secured by your home, is less dangerous than a credit card, which is unsecured.

If you don't pay the CC, it wrecks your credit and you might get sued.
If you don't pay the HELOC, you lose your home.

[Singuy]

Please explain to us how a HELOC, which is secured by your home, is less dangerous than a credit card, which is unsecured.

If you don't pay the CC, it wrecks your credit and you might get sued.
If you don't pay the HELOC, you lose your home.

If you are not going to pay your HELOC, it also means you are not going to pay for your mortgage as well so either way..HELOC or not, you are SOL.

But if say you have a medical emergency and need 20k..there's a chance of paying your HELOC back on a low interest 30 year payment period..which is only 93 dollars/month. 20k worth of CC debt however is much tougher to get rid of. And as CC debt accumulates due to crazy high interest, you pay a significantly portion of your take home towards it which leaves you with less and less savings..which can get you to a point where if you lose a job..you can lose the house. Huge interest payments and fees will keep you from saving an adequate EF (or at least taking longer to save an adequate EF). You used HEL for your CC debt for a reason you know.

[disneysteve]

But if say you have a medical emergency and need 20k..there's a chance of paying your HELOC back on a low interest 30 year payment period..which is only 93 dollars/month. 20k worth of CC debt however is much tougher to get rid of.

That's true. The terms of the HELOC/HEL would be better than the terms of the CC. Actually, in that scenario the HEL would be better because it is a fixed interest rate.

When I think of "dangerous" though, I think in terms of worst case scenario. In that sense, I'd say the HELOC/HEL carries the biggest potential risk.

[Singuy]

That's true. The terms of the HELOC/HEL would be better than the terms of the CC. Actually, in that scenario the HEL would be better because it is a fixed interest rate.

When I think of "dangerous" though, I think in terms of worst case scenario. In that sense, I'd say the HELOC/HEL carries the biggest potential risk.

Sorry I didn't think I made it clear. Its more dangerous for one to be stuck in debt and not able to every pay it back. Most people are less likely to abuse HELOC because it is tied to their house, and more willing to pay it back. I doubt anyone is willing to give up a house by not paying $93/month.

HEL may have better terms, but it's a loan you MUST take out. So if there is a dire emergency or a very good investment opportunity, you are SOL if a HeL wasn't set up prior.