HELOC w/ low or no initial draw

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alpenglow
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HELOC w/ low or no initial draw

Post by alpenglow » Tue Sep 26, 2017 10:49 am

I recently paid off my mortgage but I'm considering opening a HELOC as something of an emergency fund/liquidity source. Can anyone recommend HELOC's with low or no initial draw. I'd also like a long draw period - up to 20 years would be ideal. Thanks.

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Meg77
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Re: HELOC w/ low or no initial draw

Post by Meg77 » Tue Sep 26, 2017 11:14 am

Home equity guidelines depend on your state. In Texas for example (where I'm a banker), home equity loans/lines of credit are not allowed to have balloon notes - therefore they must fully amortize. So home equity lines of credit must convert to a fully amortizing term note at the end of the draw period; 5 years is the longest I've seen. But at the end of the revolving period, people who want to keep the lines open simply renew them and start the draw period over. [Texas has all sorts of other weird Home Equity rules such as that loan draws cannot be for less than $4000 - other states may have different rules that your bank will be able to outline for you.}

By definition though, home equity lines of credit don't require any initial draw. You just open them up and they operate like a credit card: you pay interest on the average outstanding balance from the prior month, or you pay nothing if you don't use the line. Some banks have specific products where you have to draw X within the first year or pay Y fee or whatever though, so you have to check the terms. But most credit unions and banks offer some kind of a basic, simple HELOC that is just like a big credit card that you pay a few hundred bucks plus an appraisal fee to set up.

The interest rate is usually based on the Prime rate (currently 4.25%) and floats, so it can change month to month. You may pay Prime plus 1% or prime plus 0.5%, for example. If the rate is fixed it may be higher, but if you don't plan to use it except for emergencies or short term needs down the line, a floating rate is probably better and will be lower.
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ResearchMed
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Re: HELOC w/ low or no initial draw

Post by ResearchMed » Tue Sep 26, 2017 12:14 pm

alpenglow wrote:
Tue Sep 26, 2017 10:49 am
I recently paid off my mortgage but I'm considering opening a HELOC as something of an emergency fund/liquidity source. Can anyone recommend HELOC's with low or no initial draw. I'd also like a long draw period - up to 20 years would be ideal. Thanks.
Keep in mind that on *some* occasions when you'd most need to draw on that HELOC to get emergency money, the lenders may be restricting or closing HELOCs (think 2007/8). Or if they notice (e.g., by doing regular credit checks) that you seem to be in financial trouble... they may restrict things.
Point is, don't count on this for all of your emergency needs.
Hopefully, nothing like that would happen, for any reason.

And make sure that there isn't any restriction about "no activity", such as with charge cards, when they can just close the account for lack of activity. (IF there is, then just occasionally take a very small amount and pay it right back.)

RM
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Jack FFR1846
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Re: HELOC w/ low or no initial draw

Post by Jack FFR1846 » Tue Sep 26, 2017 12:19 pm

I have had one open in case it was needed for the adoption of our first son. I've never used it, it shows on my statement every month and my son is 21 years old (was adopted as a newborn). In Massachusetts.
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mw1739
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Re: HELOC w/ low or no initial draw

Post by mw1739 » Tue Sep 26, 2017 12:22 pm

I don't understand the big deal. When I opened a HELOC with my bank, it required $10,000 minimum draw at closing. I deposited the check the same day as closing, when it cleared the next day, I paid off the HELOC. Paid maybe $1-2 in interest.

remomnyc
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Re: HELOC w/ low or no initial draw

Post by remomnyc » Tue Sep 26, 2017 12:24 pm

My Chase Heloc had no draw requirement. The draw period was 10 years. The repayment period was 20 years. There was a $50/yr fee to maintain and a $400 early repayment fee if I cancelled it before one year.

Chuck
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Re: HELOC w/ low or no initial draw

Post by Chuck » Tue Sep 26, 2017 12:28 pm

There is usually a "draw period" and a "repayment period." At my local CU, it is 4 years and 20. So after 4 years, if I needed to retain the ability to draw funds from it, I'd have to apply to open a new account. I decided not to. I did the same thing, the minimum withdrawal was $5000, which was placed in my checking account. I immediately went to my online account and transferred $5000 to my HELOC. I don't think I spent even a penny on interest. Banking is weird.

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prudent
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Re: HELOC w/ low or no initial draw

Post by prudent » Tue Sep 26, 2017 1:23 pm

Here are some factors you'd might want to look into regarding HELOCs.
- what you have to pay for closing costs and/or appraisals. And if you don't pay some of these, will they claw back their costs if you close the line before a certain period of time.
- is an initial draw required
- the percent of home value you apply for (the higher %, typically the higher the interest rate)
- ways you can access the line (check, special HELOC-linked credit card, etc.) and any minimum you have to take out
- is there a rate discount if you set up autopay from a checking account at the same institution issuing the HELOC
- length of draw period/repayment period
- can you convert your outstanding balance to a fixed rate HEL if you desire

In your situation it sounds like the most important factor is the lowest initial cost to set it up. I've seen on other sites positive comments about Digital Credit Union HELOC.

Jack FFR1846
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Re: HELOC w/ low or no initial draw

Post by Jack FFR1846 » Tue Sep 26, 2017 1:46 pm

I'll add one more thing for my DCU HELOC. It was used as overdraft protection when I opened a Discover Bank account and during the opening process, somehow had 2 withdrawals made from my DCU checking account of $15k. I discovered it the next day as I received and email. The extra withdrawal (which I didn't have in my checking account) was covered by my HELOC. I did a quick transfer from my money market account to zero the HELOC and was charged $0 interest and with a phone call, the $5 overdraft fee was removed.

There was no fee whatsoever to open this initially.
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seity
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Re: HELOC w/ low or no initial draw

Post by seity » Tue Sep 26, 2017 2:06 pm

I looked around at my options and got one with a local bank. Up to 85% LTV. Cost nothing to open. No draw requirement. 15 year draw period. Interest only monthly payments until draw ends, then 15 year repayment period.
I used it to replace my roof and paid it back over the first few months when it was a low promo interest rate. Now, I just keep it around in case of emergency.
I have to keep it at least 3 years or repay the closing cost fees, but since it's free to keep, I was fine with that.

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alpenglow
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Re: HELOC w/ low or no initial draw

Post by alpenglow » Wed Sep 27, 2017 6:25 am

Thank you for your suggestions. I will look into DCU.

noco-hawkeye
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Re: HELOC w/ low or no initial draw

Post by noco-hawkeye » Wed Sep 27, 2017 7:34 am

My credit union provides a HELOC for no paperwork, free to open, up to 100k.

The problem is, there is a 50$ yearly maintenance fee with it. 50$ isn't the end of the world, but it is one of those things to understand at the outset and also take into account for the total cost of it.

Good luck!

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