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HELOC is the one type of loan that I tell everyone to get the moment you can. After the crisis in 2008 we found that, when you NEED a loan...you can’t get one.

HELOC is the one type of loan that I tell everyone to get the moment you can. After the crisis in 2008 we found that, when you NEED a loan...you can’t get one. The only thing that got us through was that we already had an equity line open and once open, it’s just like a low interest credit card. You don’t pay anything for it if it’s not being used but having it available provides a big emergency buffer. It’s the primary reason I tell everyone to put down 20% on your home because as soon as you do that, you don’t pay PMI and you qualify for HELOC.

SilasX 7y ago
Really? I'm confused. I would think that they could rescind the offer to draw on it for the same reason they would pull back on making home equity loans. And why wouldn't they? Not saying you're wrong, it's just I don't see what kind of dynamics would lead to that kind of thing, where the economic situation drastically changes to the point where they won't make new HE loans but will gladly honor anyone's exercise of an existing HELOC on (mostly) the same terms they had before. I could understand if HELOC approval locked in some duration under which the bank couldn't back out, but I don't see why banks would grant such optionality either.
- bladegash 7y ago
  Anecdotally, I had a $50k HELOC on a property once. I wanted to avoid something happening like the bank being able to freeze withdrawals from the account. So, I withdrew all of the money from the HELOC and put it into a personal account. The interest rate was around 2.75%, so I was only paying around $100-150 per month. It was a huge lifesaver when I was in a tough situation.
- brightball 7y ago
  HELOC's tend to have a time period attached to them of something like 10 years that you can draw from it before you apply for another one. I haven't heard of banks closing an open equity line before though.
  - SilasX 7y ago
    Wow. That sounds insane. There is so much that can happen in ten years that can make the credit/loan a much worse idea. Aren’t there still caveats in that option period about eg income, prime rate, LTV, etc?
    - brightball 7y ago
      The rate fluctuates up and down with the prime rate (usually prime + 1%). The risks for the bank are the same risk with any type of loan. The difference here is that it’s secured against the home. I believe the max limit on it is 80% of the equity that you have in the home. Applying for an increase is the same as applying for an entirely new loan. Just think about how many things can happen over a 15-30 year mortgage.
      - SilasX 7y ago
        Right, I get that lots can change over the course of a regular mortgage, but that's usually accounted for by the down payment/LTV. Plus, they have already committed all the capital for it and it's a known quantity. For a LOC, it's just the option to draw, and anything from 0 to 100% of those dollars could be exercised at any time, when it may be harder for them to raise capital. Plus, I've heard stories -- albeit from the UK -- of HELOC exercise being denied once their employment/income change.

SilasX 7y ago

Really? I'm confused. I would think that they could rescind the offer to draw on it for the same reason they would pull back on making home equity loans. And why wouldn't they? Not saying you're wrong, it's just I don't see what kind of dynamics would lead to that kind of thing, where the economic situation drastically changes to the point where they won't make new HE loans but will gladly honor anyone's exercise of an existing HELOC on (mostly) the same terms they had before. I could understand if HELOC approval locked in some duration under which the bank couldn't back out, but I don't see why banks would grant such optionality either.

bladegash 7y ago
Anecdotally, I had a $50k HELOC on a property once. I wanted to avoid something happening like the bank being able to freeze withdrawals from the account. So, I withdrew all of the money from the HELOC and put it into a personal account. The interest rate was around 2.75%, so I was only paying around $100-150 per month. It was a huge lifesaver when I was in a tough situation.
brightball 7y ago
HELOC's tend to have a time period attached to them of something like 10 years that you can draw from it before you apply for another one. I haven't heard of banks closing an open equity line before though.
- SilasX 7y ago
  Wow. That sounds insane. There is so much that can happen in ten years that can make the credit/loan a much worse idea. Aren’t there still caveats in that option period about eg income, prime rate, LTV, etc?
  - brightball 7y ago
    The rate fluctuates up and down with the prime rate (usually prime + 1%). The risks for the bank are the same risk with any type of loan. The difference here is that it’s secured against the home. I believe the max limit on it is 80% of the equity that you have in the home. Applying for an increase is the same as applying for an entirely new loan. Just think about how many things can happen over a 15-30 year mortgage.
    - SilasX 7y ago
      Right, I get that lots can change over the course of a regular mortgage, but that's usually accounted for by the down payment/LTV. Plus, they have already committed all the capital for it and it's a known quantity. For a LOC, it's just the option to draw, and anything from 0 to 100% of those dollars could be exercised at any time, when it may be harder for them to raise capital. Plus, I've heard stories -- albeit from the UK -- of HELOC exercise being denied once their employment/income change.