Opening a HELOC. Wise or not?

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gndibot
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Opening a HELOC. Wise or not?

Post by gndibot »

We have a year worth of emergency fund already available and are thinking about opening a HELOC that will cover 3 years worth more of expenses. The HELOC expense is $8.50/month to keep around unused. We also have 3 year worth of annual expenses in our taxable account which we want to keep around for at least 20 years.

Is is financially a wise decision to open the HELOC, given, we might never end up using it unless there is a large sum of cash we want to deploy in a couple of days?
bloom2708
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Re: Opening a HELOC. Wise or not?

Post by bloom2708 »

I would pass.

Let's say you have a true emergency. Both lose their jobs on the same day. Do you want to borrow on a HELOC at that point?

Not worth the hassle to me.
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JAZZISCOOL
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Re: Opening a HELOC. Wise or not?

Post by JAZZISCOOL »

You will get a variety of opinions on this but I have a HELOC as an emergency access to funds beyond an emergency fund.

Have you looked into a non-fee HELOC at all? I have one through a credit union with 0 monthly fees. :happy
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Stinky
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Re: Opening a HELOC. Wise or not?

Post by Stinky »

We have a HELOC for that very purpose.

It’s nice to have “options”, especially when they are free or low-cost. I consider a HELOC as a low cost option to get quick cash.
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Topic Author
gndibot
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Re: Opening a HELOC. Wise or not?

Post by gndibot »

JAZZISCOOL wrote: Thu Dec 12, 2019 11:07 am You will get a variety of opinions on this but I have a HELOC as an emergency access to funds beyond an emergency fund.

Have you looked into a non-fee HELOC at all? I have one through a credit union with 0 monthly fees. :happy
Still trying to find one with zero fees. The least I found was charging a &750 fee which is not something I want to pay upfront.
carolinaman
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Re: Opening a HELOC. Wise or not?

Post by carolinaman »

JAZZISCOOL wrote: Thu Dec 12, 2019 11:07 am You will get a variety of opinions on this but I have a HELOC as an emergency access to funds beyond an emergency fund.

Have you looked into a non-fee HELOC at all? I have one through a credit union with 0 monthly fees. :happy
I have had a HELOC for many years with a mega bank and there is no fee with it, whether used or not. I think if you shop around you will find no fee HELOCs which I think is good to have but not necessarily as an emergency fund.
BuddyJet
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Re: Opening a HELOC. Wise or not?

Post by BuddyJet »

An option I'd consider is to consider not keeping the current 3 year emergency fund in cash but think of the HELOC as an emergency funding source past a 6 month cash reserve and invest the 2.5 year current emergency with an intermediate time consideration for better overall yield.

I'd think of the HELOC fee as insurance that funds would be available if needed. Yoiu would need to compare the fee to the additional yield to see if the trade makes sense.
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Bogle7
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HELOC, zero$

Post by Bogle7 »

gndibot wrote: Thu Dec 12, 2019 11:15 amStill trying to find one with zero fees. The least I found was charging a $750 fee which is not something I want to pay upfront.
My credit union - https://www.dcu.org/borrow/mortgage-loa ... -plus.html
I am sure there are many others.

We have a HELOC.
obgraham
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Re: Opening a HELOC. Wise or not?

Post by obgraham »

I have a fee-free heloc, and I have used it several times: buying a vehicle where I worked a quick bargain, buying a snowbird place, etc.

No downside that I see.
Admiral
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Re: Opening a HELOC. Wise or not?

Post by Admiral »

It's $102/year. If it makes you sleep better, sure, do it.

However, you have a lot of money available to you in the event of a true emergency. The issue is, if that emergency arose, would you prefer to take on debt, or just use the cash on hand? If selling from taxable would incur large cap gains, then perhaps a loan would be the better route.

I have trouble imagining a situation where I would need thousands of dollar per month, or tens of thousands at one time. But, my spouse and I have stable jobs, others make not.

My bank offered me a HELOC for $75 when I was thinking of using the money for home renovations. I opened it, but ended up paying from taxable. In retrospect I would have been better off keeping the money invested, based on market returns. But, that's retrospect. I closed the HELOC because they were going to start charging fees after a year.
markcoop
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Re: Opening a HELOC. Wise or not?

Post by markcoop »

I used to have overdraft for my checking account attached to my HELOC. Not sure if that was the best idea given the HELOC is pretty big ($100K).
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CountOnIt
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Re: Opening a HELOC. Wise or not?

Post by CountOnIt »

gndibot wrote: Thu Dec 12, 2019 11:04 am We have a year worth of emergency fund already available and are thinking about opening a HELOC that will cover 3 years worth more of expenses.
Do you have a unique situation that calls for what would generally be considered a high E-fund? If the HELOC gives you piece of mind, I would get it and then probably invest 2/3 of your E-fund - but perhaps you have a unique situation that requires a larger E-fund.

Out of curiosity - what does your risk tolerance look like on your investments (stocks%/bonds%)?
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Watty
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Re: Opening a HELOC. Wise or not?

Post by Watty »

gndibot wrote: Thu Dec 12, 2019 11:04 am We also have 3 year worth of annual expenses in our taxable account which we want to keep around for at least 20 years.
Setting up a margin account on your taxable account would be another option to consider.
Admiral wrote: Thu Dec 12, 2019 12:49 pm It's $102/year. If it makes you sleep better, sure, do it.
I hate recurring fees like that. Over the next ten years that would be over a thousand dollars.
Jack FFR1846
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Re: Opening a HELOC. Wise or not?

Post by Jack FFR1846 »

Look for a completely no cost HELOC. I'd start with credit unions. I have one I opened 23 years ago. Zero cost to open, zero to maintain. If I pull funds out of it and put them back the same day, they don't even charge me the day's worth of interest. This is with DCU, by the way. I don't know or care what the interest rate is because it's just sitting there as a backup.
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rj342
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Re: Opening a HELOC. Wise or not?

Post by rj342 »

Question -- does an unused HELOC affect credit score at all?

I've considered one a few times when had a few bigger than usual specific expenses (that I didn't want to dip into cash savings too much for). So far have ended up once every few years just using a 0% AR 12 or 18 month low fee balance transfer offer and paying it off in time out of regular cash flow.

Yes, the HELOC would be more flexible, but the potential for a bigger balance, w longer commitment hanging over our heads is something I just shy away from. Not entirely rational I know -- don't *have* to use it -- but grew up with a father making lots of mistakes w over leveraging and debt.
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Kenkat
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Re: Opening a HELOC. Wise or not?

Post by Kenkat »

If available in your area, check out Third Federal Savings - www.thirdfederal.com
Topic Author
gndibot
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Re: Opening a HELOC. Wise or not?

Post by gndibot »


I hate recurring fees like that. Over the next ten years that would be over a thousand dollars.
Yes, i really dislike recurring fees as well. They say they will not charge $8.50/ month if the monthly interest incurred is at least that. That doesn't make any sense to me.
stockrex
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Re: Opening a HELOC. Wise or not?

Post by stockrex »

HELOC's shows up as a revolving credit account from what I saw on my credit report,

So if I use 100% of my HELOC, will it hurt my credit score? This is something you need to look into.
Topic Author
gndibot
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Re: Opening a HELOC. Wise or not?

Post by gndibot »

Jack FFR1846 wrote: Thu Dec 12, 2019 1:50 pm Look for a completely no cost HELOC. I'd start with credit unions. I have one I opened 23 years ago. Zero cost to open, zero to maintain. If I pull funds out of it and put them back the same day, they don't even charge me the day's worth of interest. This is with DCU, by the way. I don't know or care what the interest rate is because it's just sitting there as a backup.
What about closing costs for the HELOC?I have an account with them.
ThePrince
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Re: Opening a HELOC. Wise or not?

Post by ThePrince »

bloom2708 wrote: Thu Dec 12, 2019 11:07 am I would pass.

Let's say you have a true emergency. Both lose their jobs on the same day. Do you want to borrow on a HELOC at that point?

Not worth the hassle to me.
+1

Let’s not compound our risk and misery by borrowing in/through an emergency.
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