Re: Intermediate Savings???
Yep its important to have it in place up front, before the "emergency". I've had 100k on my old house and 100k on this one. I used the 100k on the old house as a partial payment to buy the new one so I didnt have to cash out a lot of investments to pay cash for this place prior to selling the old place. Then when the old place sold a few months later, I paid off the HELOC. My cost was about $375 worth of interest, all tax deductible.
sockit...the only thing you have to mind is if your value has gone up and you DONT have a recent appraisal, the bank may ask for one to do a heloc over the amount of last appraisal.
Also, if you hold a current first mortgage, there may be some extra paperwork if you dont do the HELOC with the same company. Since you deeded the house to the mortgage company in case you default, adding a second bank as a HELOC provider means they have partial interest in the same property. For your primary mortgage holder to seize and sell it, they need to pay off the secondary holder (or vice versa). You are also at the mercy of the stronger of the two companies foreclosure requirements in the event of default.
Since I've only had a primary mortgage for two out of the last 19 years, hasnt been a problem for me.
The structure of the heloc is usually that you have a 15 year "draw period" to use it as a revolving line of credit, then it stops being a withdrawal vehicle and you have an additional 10 years to finish paying it off. So its sort of like a 25 year mortgage. Once you get past the 15 year draw period, you can renegotiate the HELOC for a fresh draw period, sort of a refinancing.
Most HELOC's allow conversion to a fixed mortgage. Mine allows me to "lock a rate" on an amount up to four times during the draw period at a rate of about prime+2 (roughly 6% today). My girlfriends allows a single lock for prime + the current 3 year treasury rate (again about 6% today). This is handy if a few years in you need to pull $25k for some major house renovation project and are concerned that rates may rise during your payback period.
The only other really big things to look at other than rates, terms and locks are caps. I see one HELOC with a 2% maximum annual raise, done once a year, with a cap of 9%, and I see another with a 2% maximum annual raise, done monthly, with a cap of 18%. Same rates and terms. The former is obviously a better buy unless you think rates will go lower still and stay there for the term of your payback. Pretty unlikely.
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.