Good Time for a HELOC

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The Man with the Axe
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Joined: Sat Dec 21, 2019 2:05 pm

Good Time for a HELOC

Post by The Man with the Axe » Wed Mar 25, 2020 11:29 am

We just applied for a Home Equity Line of Credit. We have no intention of actually borrowing under the HELOC and we hope we will never need to use it. But in a pinch, the HELOC could extend the life of our emergency funds by as much as a couple of years. Under the circumstances, we think it is wise to secure all of our potential sources of liquid funds. We have a substantial amount of equity in our house – but that equity is not liquid. The HELOC would allow us to tap some of that equity as a last-resort source of cash.

Other than the hassle of un-freezing our credit and filling out the application form, there is no cost to establish the HELOC. Our friendly credit union will set it up gratis.

We wanted to expedite our application, while we know the employment verification phone call will be answered in the affirmative.

bloom2708
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Re: Good Time for a HELOC

Post by bloom2708 » Wed Mar 25, 2020 1:26 pm

I'm not a big fan of an open HELOC for an Emergency.

If you both lost your jobs today, would you want to start borrowing money? That could make a bad situation worse. I think you would want to use it more when it is not an emergency.

I also think open HELOCs are opportunities to overspend. Well, we have the HELOC sitting there unused, let's go for that new XYZ toy or do that home remodel.

On the flip side, it probably won't do much harm if you don't use it. Your outstanding credit would go up. I think that could temporarily affect your credit score. But usage would be $0 (hopefully) so it should be minimal.

I would beef up your Emergency Fund over the next months over the HELOC, but take my answer with a grain of salt.

Hopefully a few others give their thoughts.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

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JDCarpenter
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Re: Good Time for a HELOC

Post by JDCarpenter » Wed Mar 25, 2020 1:36 pm

We opened one up in 2016 before retirement to have as emergency source of funds. A nice security blanket that easily exceeds a moderate year of spending. With all spending otherwise coming from IRAs, it would allow us to avoid taking a bigger tax hit if a major emergency comes up after our Roth Conversions for the year....
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watchnerd
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Re: Good Time for a HELOC

Post by watchnerd » Wed Mar 25, 2020 1:42 pm

If you must.

But HELOC credit can be taken away, especially in a time of crisis and job loss.

I wouldn't feel real secure about relying on a safety net that can be yanked.

Get it for the short term. Long term, do better at beefing up your savings.

Paying interest while jobless = ewww.

Earning interest while jobless = better.
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