To HELOC or Not?

[TrvlBug]

That's the question. I searched, but couldn't find a discussion on the merits. I retired about 3 years ago , but DH is still working, planning on pulling the plug next spring.

We're doing some substantial remodeling and I was checking rates and it made sense to open a HELOC because of the low rates rather than pulling some money from our investments. Then DH discovered what financial info they wanted. DH thought, house paid off, amount of HELOC would be about 10% of house equity...no brainer what else would they want . He's somewhat naive in these things but I love him anyway.

My thoughts are to open a HELOC anyway...it would be nice to have in the event we need/want funds at a time when it would be detrimental to pull from investments. We're talking about buying a vacation home in a few years...things like that. Value of non-residential investments is mid to mid-high 7 figures.

DH concern is privacy and how much financial info the bank wants. Our needs for the remodeling are about $100K and bank offers 10 year HELOC up to $500K. I'm thinking we should open HELOC for $500K. Thoughts on opening a HELOC?

 

[growing_older]

I like the idea of having the option available. With a little shopping you should be able to find a HELOC that won't cost you if you don't use it, so assuming you can tolerate the disclosures needed to open one, you get to decide whether you ever actually take any money from it.

 

[brewer12345]

"If you've ever handled a penny, the government has your DNA."

There is no such thing as privacy anymore (see my signature). Tell them what they want to know and take out the full 500k line. It is a free option.

 

[samclem]

I think getting a HELOC whie you can is probably a good move. I'll probably be doing the same thing soon. I understand your DH's concerns, but the bank is just one of the hundreds of places that already have your data. Perhaps he would feel better about the whole thing if he went over the bank's privacy policy in advance and took whatever steps are available to reduce sharing of your info by the bank to other entities.

 

[TrvlBug]

Very good points wrt privacy...there is no such thing anymore. Thx samclem with your suggestion about the bank's privacy policy.

I really like the idea of the substantial HELOC and not having to worry about bridge loans and the like in the coming years especially when we have no 'income' coming in.

WFB is offering 1.99% drawing by the end of Jan. for a full year. This will cover our reno. No costs other than $500 if we close the HELOC within 3 yrs.

 

[Amethyst]

I've never had HELOC and am considering one, in case we find a house we really want to buy before our current one sells (which likely will be a loooong wait). What could be the drawbacks of taking out a big LOC and just sitting on it for a year or more without drawing? Our home is paid off.

Amethyst

 

[clifp]

Very good points wrt privacy...there is no such thing anymore. Thx samclem with your suggestion about the bank's privacy policy.

I really like the idea of the substantial HELOC and not having to worry about bridge loans and the like in the coming years especially when we have no 'income' coming in.

WFB is offering 1.99% drawing by the end of Jan. for a full year. This will cover our reno. No costs other than $500 if we close the HELOC within 3 yrs.

That is a good teaser rate. What is the regular rate. It certainly has been helpful to have mine during my remodeling.

 

[Andre1969]

I've never had HELOC and am considering one, in case we find a house we really want to buy before our current one sells (which likely will be a loooong wait). What could be the drawbacks of taking out a big LOC and just sitting on it for a year or more without drawing? Our home is paid off.

Amethyst

I took out an HELOC about 9 1/2 years ago. I don't know that there are any drawbacks of just sitting on it and not withdrawing any money. If we have another financial meltdown like in 2008 though, some banks will freeze an HELOC, so you can't take any more out, even if you're nowhere near your limit. Mine didn't do that, but I pulled all the money out, just in case, and then invested a lot of it at the bottom of the market, so it paid off for me.

Mine has a $50 annual maintenance fee, but that's it. Oh, one other drawback, for mine at least, is that after 10 years, you can't borrow any more and it turns into a 20 year mortgage.

 

[Senator]

Always open a HELOC and do it while you are working. Especially if your home is paid off. Leave it idle, if you can. Or use it for emergencies. I sometimes use my for quick cash when I am buying a real estate deal.

The only disadvantage is if you close the HELOC too soon. You can open it, borrow and pay it back several times a year, but if you use a HELOC from a different bank, or sell your home, there may be a penalty. I have a $500 penalty clause in my HELOC. Otherwise mine is 100% free,

 

[eytonxav]

I took out a HELOC before I retired last year. It helped me to payoff DD's college loan and for a down payment on a new home as we were downsizing. Once we sold the old home, I paid it off. Definitely take it out while your DH is still working.

 

[TrvlBug]

That is a good teaser rate. What is the regular rate. It certainly has been helpful to have mine during my remodeling.

Their regular rate is Wall Street Prime + ?. She said it would be about 4% at today's rate. If we open a savings acct with a minimum balance of $25K and have repayments automatically drawn from that, there is a .5% rate reduction as well as waiving the yearly $75 HELOC fee. I called our credit union and they also use Wall Street Prime which is currently 3.25%. They add .25%, so their current rate is 3.5%. They also have a $500 prepayment clause if the HELOC is closed within 3 years.

Another bennie is that WFB will do a full blown appraisal of the house and I'm curious as to its actual value.

DH and I discussed at length last night and we decided to go ahead with the HELOC for the various reasons cited above.

 

[TrvlBug]

I've never had HELOC and am considering one, in case we find a house we really want to buy before our current one sells (which likely will be a loooong wait). What could be the drawbacks of taking out a big LOC and just sitting on it for a year or more without drawing? Our home is paid off.

Amethyst

None other than the $500 or so if you close it within 3 years. However, she stated that really only happens when someone sells their home within 3 years, but if you open a HELOC on your new house, that $500 is returned to you (at this bank anyway). You should also check around as a couple of credit unions I talked with offered only up to $250K with one offering a max. of $100K.

 

[Amethyst]

Assuming this stands for Wells Fargo Bank...I didn't see this offer on their web site. Maybe you have to be a member to see it? We have some minor investments with them, but not a bank account.

Amethyst

WFB is offering 1.99% drawing by the end of Jan. for a full year. This will cover our reno. No costs other than $500 if we close the HELOC within 3 yrs.

 

[Live And Learn]

I'm glad this topic came up. Alot of good reasons to have "at hand" credit, one of which is (G-d forbid) the need to rebuild after a hurricane while waiting for insurance to pay. Since I bought the 5 year 3% CD's with PenFed I'll probably go with them. Rate is Prime + 0 (with a minimun rate of 3.75 which is where it is today).

 

[TrvlBug]

Assuming this stands for Wells Fargo Bank...I didn't see this offer on their web site. Maybe you have to be a member to see it? We have some minor investments with them, but not a bank account.

Amethyst

Yes, WFB. We were in late Friday to open a checking acct and box. I asked what their HELOC rates were as I was looking around and was told about the 1.99 promo rate, locked in for a year. Was told I had to get the application in by the end of Sept, so we filed out some preliminary paperwork to get in under the deadline. The loan specialist who called Monday advised that we had until the end of Jan. to draw and the rate would be locked in for 12 months at draw.

As you have a relationship with them, it wouldn't hurt to call and see if you could still get that rate.

 

[ExFlyBoy5]

I'm glad this topic came up. Alot of good reasons to have "at hand" credit, one of which is (G-d forbid) the need to rebuild after a hurricane while waiting for insurance to pay. Since I bought the 5 year 3% CD's with PenFed I'll probably go with them. Rate is Prime + 0 (with a minimun rate of 3.75 which is where it is today).

I have a HELOC through PenFed. It was painless to open and it's there if I need to access a large sum of cash in a short period. There are no closing costs if you keep it open for 2 years. I haven't drawn on it but I have gotten several offers for limited time 1.99% draws (good for about a year). I have debated using it for some investment reasons, but haven't so far. If I remember correctly, there is a 15 year draw period.

Sent from my mobile device so please excuse grammatical errors.

 

[brewer12345]

I don't like the Pen Fed product because they require a monthly payment of 2% of the outstanding balance. Look for an interest-only product for better flexibility.

 

[Gill]

I don't like the Pen Fed product because they require a monthly payment of 2% of the outstanding balance. Look for an interest-only product for better flexibility.

Not a problem. Just borrow the principal again after making the payment.
Bruce

 

[TrvlBug]

Assuming this stands for Wells Fargo Bank...I didn't see this offer on their web site. Maybe you have to be a member to see it? We have some minor investments with them, but not a bank account.

Amethyst

Stopped by today to sign some papers. Loan Specialist mentioned that they have promo rates all the time. If they won't extend the current promo rate for you, there may be another similar one along shortly.

 

[ExFlyBoy5]

I don't like the Pen Fed product because they require a monthly payment of 2% of the outstanding balance. Look for an interest-only product for better flexibility.

What I have is an interest only HELOC. They have several products available of the HELOC variety.

Sent from my mobile device so please excuse grammatical errors.

 

[Cat-tirement]

After reading some advice about HELOCs here earlier this year, I opened one a few months ago, before my ER last month. It is interest only, with a $20 annual fee after the first year. Though I have not tapped it yet, I anticipate using some of it to fund a few house projects before we sell and move to our retirement location. The balance would then be paid off by the sale proceeds. I am also contemplating using some of it for living expenses before the move, which should allow me to increase Roth conversion amounts. Since our destination location has higher state tax rates, I would like to convert as much as practical before then.

 

[panhead]

I close on my HELOC on Monday. Teaser rate at 1.99% for 1 year, no annual fee. The only requirement was an initial draw which can be paid back immediately. I may just invest the required initial draw and pay the HELOC back within a year.

Edited to add that this came from a local, small, brick and mortar bank.

 

[samclem]

I haven't found it to be very easy to compare these HELOC products--often the info isn't readily available on the bank/CU web sites. I'm particularly interested in how long the thing will remain in place after I set it up (i.e. how long before they'd re-appraise the house, look at my income again, etc). I'd like this to last at least 20 years, 25 if possible, most ER types are probably in the same boat. This has usually required a call to the bank.

 

[athena53]

We got one from Citi years ago; it's interest-only and although the rate can vary, it's stayed at 2.75%. Sounds like we could do better, but the dollars may not be that much.

DH and I put everything on credit cards and then pay in full every month. We have a reserve for routine home repair but when we had to replace the furnace we used the HELOC to pay the credit card bill and paid back the HELOC over time. We also used it to buy cars twice: the first paid back within 3 years, the second one still open (bought the car in February). Why take money out of investments to buy a car when you can get a loan at 2.75% instead?

Similarly, we'll have a lot of repairs to do to get the house in move-in condition before we sell next Spring. Most are in the $500-$1K range but they'll add up. That will go on the HELOC, too. Even if we max out the $50K credit line (unlikely), we won't be in trouble since we have at least $180K in equity in the house.

In general, I'm wary of using the HELOC as an ATM, but in our case, borrowing is a strategic decision, not something we do because we don't have the cash.

 

[brewer12345]

I have had HELOCS in place for about a decade. I have only used them twice: I drew 50k in early 2009 to go buy junk bonds, and I used it as a bridge loan when we relocated 2/3 of the way across the country in 2011. Rarely used, but boy is it a big deal when the opportunity arises.