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Do you have a HELOC?

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  • Do you have a HELOC?

    If so what kind of rates / fees? How many use one only for short-term cash-flow or supplemental emergency fund purposes?

  • #2
    Also interested in this subject. HELOC interest is typically tax-deductible too, right?

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    • #3
      I set one up with my mortgage provider when I bought a house. Cost is an interest rate of mortgage rate + 0.3%. with no fees for set-up or use. As I pay down my mortgage the HELOC available goes up by the same amount. I will be getting rid of it when I renew my mortgage with a different lender as I now have substantial other resources to tap in an emergency. My initial intention was to use it for structural house emergencies. In the end I used it once to send a large sum for an investment because the wire fees were 30 bucks cheaper than my main bank. I don't believe in leaving large sums uninvested for an emergency fund, it is cheaper to pay credit card interest for a month than to leave it uninvested. If I got to the point of feeling that I needed to pull general living expenses from my HELOC it would trigger a revision to my finances in general. Don't put the roof you're living under at risk is a great guide to live by.

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      • #4
        I do not have one or really need one right now but it would be nice to have the LOC open in case of emergency. I do not think I would decrease my Efund but it would make me feel better if i ever hard to use my efund. But since I have not actually needed it I cannot justify the fees. If any I never looked.

        I thought it was only tax deductible if it was used for home renovation. and it did not put you over the 750K limit.

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        • #5
          Lordosis got the tax deduction part right.

          We opened a HELOC back when we bought the house as an 80/10/10 loan. Mostly paid all of the HELOC off and goal is to be done by the end of the year. I don't think of it as an EF since the interest is now 5% as the fed has set rates to 0. Every time the fed changes interest rates my HELOC goes up that percentage. 5% is the lowest it'll be. In a true emergency it's nice I guess but we'd have to completely lose our EF first and it's hard for me to see that happening, even in COVID times

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          • #6
            $500K HELOC, have always had one the past two decades. No fees ever paid, not even closing costs. Have always gotten prime minus 50 basis points (currently 2.75%). I never used it for anything long term, fully paid off any balance within 6-12 months at the most.

            With the new limits on deductions, not using it that much and often it's more a back up to my reserves. HELOC deduction is tricky, read this:

            https://www.schwab.com/resource-cent...tax-deductible

            If you want one, consider it soon. Banks are tightening requirements for HELOCs, and two large lenders, Chase and Wells Fargo, are not currently accepting applications.

            https://www.chase.com/content/chase-...-equity/update

            https://www.wellsfargo.com/equity/li...redit-details/
            Last edited by EntrepreneurMD; 05-11-2020, 11:37 AM.

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            • #7
              It’s cheap to set up. A signiicant percentage of your equity. Variable rate. Second lien less favorable than mortgage. Only deductible for home improvements.

              That said, I only used it for “float”. Moving money around between banks/brokerage can take 3 days without paying fees. I kept operating cash in checking. Didn’t sweat 3-5 days interest. Need a new roof? Need a new car? Cash immediately available. Don’t use it for financing. Didn’t have a mortgage.

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              • #8
                We had a HELOC and used it a couple of times to help purchase multifamily assets and just considered it shifting equity from one asset to another. Each time we paid it off within 6-12 months. We haven't needed it for a couple of years so let it expire. It never had any fees for being available. We have a business LOC now and plan on keeping it active. We've used that several times also but that one does cost about $150/yr to renew.

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                • #9
                  I have had one for 10-15 years, I do not even remember how long. I initially set it up anticipating some overruns in home renovations, but we ended up having the cash to pay for the project. And I have since kept, as the "back up to the emergency fund, emergency fund". I have never tapped and am not up to date on rates. My first HELOC (Wells Fargo?) charged me $75/year to maintain it. My current local banking relationship charges nothing, and I have a $200k line of credit.

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                  • #10
                    Sounds like there are a lot of options for minimal or no fees. Do you have to use it when you first set it up or can it just be opened?

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                    • #11
                      We didn't have to use it when first set up but that's why we set it up, to help us buy an apartment building. It was a four year HELOC that we renewed once and used twice before letting it go. They're easy to set up if you have any type of relationship with a local banker.

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                      • #12
                        Keep in mind that back during the 2008 global financial crisis HELOCs were being reduced or closed unilaterally by banks. Not sure if the same thing is happening today, but it’s no substitute for an emergency fund.

                        If an unused HELOC is reduced or shut off by the bank, it isn’t as severe as a margin call at the bottom of the market, but it surely isn’t a good event if you were relying upon it.

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                        • #13
                          Originally posted by Lordosis View Post
                          Do you have to use it when you first set it up or can it just be opened?
                          I've seen both types, one where it's like a credit card & can move money in & out of it at any time without restrictions. Vice versa, I've seen accounts where upon approval the equity will be transferred into a checking account & the heloc is scheduled for payments, no withdrawals of repaid principal after the initial distribution. If paid off early, the account is closed. Granted this was not recent.
                          $1 saved = >$1 earned. ✓

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                          • #14
                            HELOC for as long as I can remember. no cost to open /close/maintain. PRIME-0.5% currently.

                            -We keep checking extremely lean - x1 month and HELOC as the overdraft. (no cost).
                            -We keep a very small efund. 5-10k that fluctuates
                            -We have a sizable taxable fund with large municipal fund that is 3day access.

                            During the holidays, there's surge of spending and taxes due -- which often outstrips our cashflow. HELOC with promotional rates usually happen during this time ; last year 0.9% -- floated HELOC for 2 months until cashflow catches up to zero out the HELOC. Same for any other large one-off large purchases. Instead of accessing efund or taxable fidelity funds - use HELOC to float -- a lot like a margin account for those in the trading world.



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                            • #15
                              tag

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