Home Equity Line of Credit

[nico08]

I recently became a homeowner. I was also recently told that my job would be relocating in about 1.75 years to North Carolina. I do not plan on moving. I have savings and investments, and I hope I will not need to tap into them after the current job relocates. A friend of mine mentioned that I should look into a home equity line of credit. He said I would be more likely eligible while gainfully employed.

I did a refinance with cash out with Pen Fed. I did that because I am buying out my siblings interests in the family home. It's kind of like a mortgage for me. So I looked on Pen Fed's website to find out about HELOCS. They seem to have a traditional HELOC and a 5/5. I am not sure of the difference and which would be better for me. I think it may have something to do with interest rate movement. I am not sure if either or both have annual fees.

I want the HELOC for insurance, I don't intend on using the money, but I think it would be good to have access to it. Which product would be better for me? Thanks for your advice.

[HawkeyeNFO]

I'm a PenFed customer too. Similar questions as you.

[nico08]

Hi HawkeyeNFO:

There must be a way for us to figure out the pros and cons of these two types of financial products.

I haven't called PenFed's customer service line yet, I was hoping to be able to just move forward with the on-line application.

[nico08]

Hi. Pen Fed is open on Sunday. I went through the application process over the phone. There is no annual fee for either type of product. I believe the 5/5 is a better product because you are locking into a low interest rate for 5 years and there is no additional cost connected to that guaranteed rate. The traditional HELOC rate can change quarterly. If an appraisal of your property is necessary, you pay for it and it costs about 200-400$. And I think with the 5/5, if you close the account before 3 years, then you pay the closing costs. So, if you planned on moving or filing bankruptcy in the next 3 years, then you may not want the line of credit. I think for the traditional HELOC, you need to keep it open for 2 years.

[MooreBonds]

Quote:

Originally Posted by nico08 I want the HELOC for insurance, I don't intend on using the money, but I think it would be good to have access to it. Which product would be better for me? Thanks for your advice.

It's not clear from your post on what your exact plans are on the financing...but I recently refi-ed my 5/5 ARM from PenFed into their 5 year HELOC (will have the house paid off in 5 years). It's just 1.99%, with no fees whatsoever - and if your Loan-to-Value is less than 70%, you can even ask that they do away with the $300 appraisal to make it truly no cost.

However, if you aren't sure you're going to draw on the money, or will take longer than 5 years to pay it off, then it's a different story.

The reason I did a 5 year HELOC instead of plowing the funds into the market is that my original long term goal is to move or build my dream home in about 10 years, so a traditional 30 year mortgage to take advantage of the super low 30 year rates won't really pay off....

[Amethyst]

I've never had a HELOC and am a bit confused by the "different story" comment.

Isn't the whole point of a HELOC that you pay nothing if you don't use the funds? Then again, that sounds too good to be true.

For example - and I think this is relevant to OP's concerns even though OP is still working- I am thinking of taking out a large HELOC when I retire, in case it becomes harder to get a loan afterward. Does that make sense?

Amethyst

Quote:

Originally Posted by MooreBonds It's not clear from your post on what your exact plans are on the financing...but I recently refi-ed my 5/5 ARM from PenFed into their 5 year HELOC (will have the house paid off in 5 years). It's just 1.99%, with no fees whatsoever - and if your Loan-to-Value is less than 70%, you can even ask that they do away with the $300 appraisal to make it truly no cost. However, if you aren't sure you're going to draw on the money, or will take longer than 5 years to pay it off, then it's a different story. .

[Felix Mulier]

Quote:

Originally Posted by nico08 I recently became a homeowner. I was also recently told that my job would be relocating in about 1.75 years to North Carolina. I do not plan on moving. A friend of mine mentioned that I should look into a home equity line of credit. He said I would be more likely eligible while gainfully employed.

Personally, I stay away from any debt (or investment for that matter) that I don't understand and don't know exactly what I'm doing and why. Your post left me thinking you're not dealing from your strengths here. There is a lot of instability in your life right now - I recommend doing thorough research on your options, not just take the advice of an albeit well-intentioned friend. Your post here is a good start. Best of luck.

[MooreBonds]

Quote:

Originally Posted by Amethyst I've never had a HELOC and am a bit confused by the "different story" comment. Isn't the whole point of a HELOC that you pay nothing if you don't use the funds? Then again, that sounds too good to be true.

Ah....perhaps I was a little confused as well. I guess I read HELOC, but was thinking "home equity loan". And then when they mentioned "traditional HELOC and 5/5", my brain started to think of their 5/5 ARM and Home Equity Loans.

My 2 cups of coffee were still in my stomach, and the caffeine hadn't yet reached my brain.

[nico08]

Hi. Yes, there is a distinction between a home equity loan and a home equity line of credit. With the loan, you actually take the money from the onset. With the line of credit, it gives you the ability, if and when you need to access money from the equity that has built up in your home.

I would get the home equity line of credit so that, if I was unable to find a job for longer than expected, had a health problem, or had some other sizeable and unpredictable cost that had to be paid immediately, I could pull the money from the line of credit.

I understand that banks are more willing to issue a line of credit while you are gainfully employed. And since I may be out of a job in a couple of years, I thought it made sense to get the line of credit now.

Based on the banks equation, I am only eligible for about $32,000 as a line of credit. But access to that money could help if I needed it.