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I closed my HELOC a few years ago. I don't like paying to have credit. Having it open and with any balance can prevent you from refinancing quickly if the rates drop. Also, I have enough credit elsewhere to not risk the house. I understand why people have them but it's also the worst thing ever when/if the real estate values drop.
Many of my friends are happy to keep their lines open though, so it all depends on your comfort level.
I Used a 4% HELOC to pay off my primary mortgage, that immediately saved me a couple percent without refinancing costs. Then I put all available resources to work paying off the HELOC, since cash, CDs, MMF were paying next to nothing that saved me an additional 4% on the balance i retired. I held the HELOC at zero balance for a couple years while rebuilding my savings reserves, then cancelled the HELOC because I did not want to pay $60 a year to keep it open.
Obviously, I had enough home equity to do this and decent job security. But, the principle remains the same. I did consider the HELOC my emergency fund until I had rebuilt savings FWIW.
OP, your three points seem based in worst case scenario. I can't think of any reason whatsoever why they would freeze your credit line.
I would never pay $75 maintenance fee. That is ridiculous.
I am currently relying on my HELOC as my 6 month emergency fund. I anticipate increasing my income soon so I can catch up on that. But it seems okay thus far and if I have to tap it I am able to pay it down reasonably quickly.
I just bought a furnace, $4100. Thank heaven for the HELOC! The HELOC interest is tax deductable.
OP, your three points seem based in worst case scenario. I can't think of any reason whatsoever why they would freeze your credit line.
I firmly believe in planning finances for the worst case scenario. When thing go sideways, I'm always prepared and know what my contingency is. Your right, its less likely to happen, but I still want to consider it.
The bank does random appraisals and if the HELOC credit limit is more than 10% of the new appraisal value of the home, the bank will change the credit limit to $0. Will it happen? Probably not, but its a possibility, so why not take it into consideration?
Quote:
Originally Posted by Stagemomma
I would never pay $75 maintenance fee. That is ridiculous.
This is part of a loan program where the HELOC is a 2nd mortgage and there are very specific rules. The rules are defined by the primary lender (1st mortgage) when they setup the program with the 2nd lender. The HELOC has a $75/yr maintenance and a $475 penalty the account is closed in the first 5 years. I can carry a zero balance with no penalty and there is no minimum or maximum draw (other than the credit limit of course).
This was fine for what my needs were at the time. It was the right time to buy a house, and I was comfortable with the odds that I could accomplish my 2 year repayment goal. I will keep it open for 5 years and then will talk with the lender about a change in terms or will close and open a different line of credit.
I think that LOC's are a good idea for a single income household without a lot of disposable income.
I closed my HELOC a few years ago. I don't like paying to have credit. Having it open and with any balance can prevent you from refinancing quickly if the rates drop. Also, I have enough credit elsewhere to not risk the house. I understand why people have them but it's also the worst thing ever when/if the real estate values drop.
Many of my friends are happy to keep their lines open though, so it all depends on your comfort level.
Good points, and something to chew on. Thanks! What other lines of credit do you have for emergencies? Are there high interest or low interest? I'd love to find something other than a HELOC after 60 month that will be relatively low interest and give me say $20K in borrowing power. I would never, for instance, pay for a new furnace on my Citicard at 20% interest.
What's the other 10% in the 80/10/10 plan? Down-payment? Or 401k loan? I noticed in another thread you have one.
That rather changes things.
Yes, down payment. I did end up with a 401K loan but that was to pay the difference between a crappy appraisal and the re-negotiated home price. So I guess you could call it an 80/10/10/6 program. Wise? Maybe not in a strictly financial sense, but I felt this was the right house for me and plan to live here for the next 20 years.
The 401K terms were extremely generous. I could borrow up to 50% of my 401K value on up to a 10 year note and still contribute to the plan and get company match money. So I took a 10 year note and I still contribute the minimum to get the match money. I plan to pay off this loan in 2017. The risk comes if I separate from the company, because I have to pay the balance in full within a couple of months or take it as a distribution.
You are right, I should have added it to the equation. If I want to use the HELOC to pay off the 401K if I lost my job, then I need to keep back $18K in emergency cash. So that settles it! $19K onto the HELOC and then $550/mo payments for a year plus any extra dough I find laying around.
Last edited by TheWayISeeThings; 03-11-2015 at 09:41 AM..
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Wise? Maybe not in a strictly financial sense, but I felt this was the right house for me and plan to live here for the next 20 years. 
