HELOCs - Pros and Cons? Rates?

R

rkp

Well-known member
What are the pros and cons of a HELOC?  Where do you have your HELOC from and what are the rates?

We had one that we just had to close due to a refi.  It had a zero balance but it was nice to know that it was there for emergencies.  Thinking whether I should open a new one or not.

Pros: Fast access to money (3 days to clear), low interest rates, 0 to small annual fees
Cons: zero balance HELOC treated as fully loaned out on DTI calculation, have to close during refi and possibly pay closing fee

Whats your take?
 
I don't have anything to offer and no experience in HELOC; but since you are talking about emergency funds, is it better to keep 6 figure in bank account earning paltry interest or opening a HELOC and you can invest your cash? Let's say my LTV is 50%.
 
The California Court Company said:
I don't have anything to offer and no experience in HELOC; but since you are talking about emergency funds, is it better to keep 6 figure in bank account earning paltry interest or opening a HELOC and you can invest your cash? Let's say my LTV is 50%.
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Depends on your risk tolerance.  For us, we maintain a 1 year emergency fund but have most of it in low risk (low return) index funds.  The HELOC was above and beyond that and acted as easy source of cash for short periods.  For example, we bought investment condo and used HELOC as source of downpayment as I didn't want to liquidate any of the index funds just then.  Basically gave ourselves a 90 day short term loan without any hassles of applying for one.
 
I think you pretty much covered the pros and cons.  One additional pro is for asset protection.  If someone wants to sue you and does an asset search and sees you have 2 liens against your property (one for primary mortgage and one for HELOC), he might be less inclined to sue you (vs. if he only saw 1 lien against the property).  I don't think you can check to see if the 2nd lien is a HELOC or not.  It just looks like you owe a lot of money on your property.

I got a HELOC in case I need cash at a low interest rate (mine is prime - .75%).  Since there is no annual fee, the only downside is when it comes time to refi.  I think I had to pay an additional $300 to get it subordinated. 
 
woodburyowner said:
I think you pretty much covered the pros and cons.  One additional pro is for asset protection.  If someone wants to sue you and does an asset search and sees you have 2 liens against your property (one for primary mortgage and one for HELOC), he might be less inclined to sue you (vs. if he only saw 1 lien against the property).  I don't think you can check to see if the 2nd lien is a HELOC or not.  It just looks like you owe a lot of money on your property.

I got a HELOC in case I need cash at a low interest rate (mine is prime - .75%).  Since there is no annual fee, the only downside is when it comes time to refi.  I think I had to pay an additional $300 to get it subordinated. 
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interesting point on asset protection.  if it shows the line value vs amount drawn, it would make it seem like there is less equity to go after.
 
rkp said:
woodburyowner said:
I think you pretty much covered the pros and cons.  One additional pro is for asset protection.  If someone wants to sue you and does an asset search and sees you have 2 liens against your property (one for primary mortgage and one for HELOC), he might be less inclined to sue you (vs. if he only saw 1 lien against the property).  I don't think you can check to see if the 2nd lien is a HELOC or not.  It just looks like you owe a lot of money on your property.

I got a HELOC in case I need cash at a low interest rate (mine is prime - .75%).  Since there is no annual fee, the only downside is when it comes time to refi.  I think I had to pay an additional $300 to get it subordinated. 
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interesting point on asset protection.  if it shows the line value vs amount drawn, it would make it seem like there is less equity to go after.
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any lawyer who deals with going after assets would probably know this.
 
Very little downside to getting a HELOC.  I use it when needed for some big trades...when I'm done with the trades I pay down the HELOC...then rinse and repeat. 
 
USCTrojanCPA said:
Very little downside to getting a HELOC.  I use it when needed for some big trades...when I'm done with the trades I pay down the HELOC...then rinse and repeat.
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you refinance pretty often.  how do you deal with the subordination fee?
 
rkp said:
USCTrojanCPA said:
Very little downside to getting a HELOC.  I use it when needed for some big trades...when I'm done with the trades I pay down the HELOC...then rinse and repeat.
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you refinance pretty often.  how do you deal with the subordination fee?
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Only refinanced my home two times.  First refi was with PenFed who already had the HELOC so no fee.  The second refi was with a non-PenFed lender and PenFed only charged a $100 subordination fee for the HELOC.  The lender credit more than took care of that fee along with all the other closing costs.
 
MrIrvine said:
Any good place to get HELOC?  I only see prime+, how could you get prime-
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Most places will offer Prime or a floor that's just above Prime.  I used to have a HELOC of Prime -1.00% on my Quail Hill Condo (with no floor rate) but those are not available anymore.
 
Legit949 said:
Any suggestions for a HELOC on an investment property? Thank you!! PenFed?
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PenFed is the only one that I know of.  The LTV will be lower and the rate will be higher (obviously). 
 
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