Home Equity Loan/ HELOC question

**chatterweb** · 03-12-2006, 08:10 PM

I was wondering if anyone had one, and if so, what are the pros and cons?

Thanks for any advice!

**madhen** · 03-12-2006, 08:39 PM

I have a 20 year HELOC. The good news is that the interest rates are usually pretty reasonable, and it is a good way to consolidate your bills (or pay off a car, which is the first thing I did with mine).

I would definitely try to get a fixed rate. I got an adjustable rate, and it has been creeping up for the past several months.

The negative side is that you usually end up paying for the appraisal, and you will usually find you qualify for a larger figure than you thought, you'll get that "line of credit," and then you'll have to keep yourself from accessing it.

I got mine because when I moved to my property, I needed to fence it to keep in two very active dogs (and later to keep in goats and donkeys). Fencing is VERY expensive, so I have used my HELOC to pay for that. All in all, I think it cost me about $15,000 to fence/cross-fence the whole property (except for a small section up front that I haven't gotten to yet).

If you can not touch it, it is a great alternative to having a "just in case" credit card.

**madhen** · 03-12-2006, 08:42 PM

The other downside is, of course, that if you default on your credit cards, not much happens to you. If you default on a HELOC, it is the same as defaulting on your mortgage. The bank can repossess your home.

**FrugalMomof3** · 03-13-2006, 07:47 AM

I have a home equity loan or HELOC and the interest rate like MadHen said creeps up (I also have an adjustable rate). I think it's great because we have paid off alot of stuff, our car and a few credit cards and stuff. The monthly payments aren't that bad but you have to pay more than the minimum to start seeing your balance go down.

Cons:
- You are paying itnerest only, any payment above the min. payment reduces the amount of the loan.
- You can lose your home if you default.

**NoDebtMom** · 03-13-2006, 02:04 PM

I would avoid it if possible, you are not really eliminating debt, just transferring it. And you are adding a lot of risk to your life because they can come after your house. I am sure there are emergencies and exceptions, but just really research and think carefully before you proceed.

**amysh** · 03-15-2006, 10:35 PM

If you are asking which is better a loan, or a line of credit, it depends. What do you plan on doing with the money?

If you have a specific need (e.g., remodeling the bathroom), take out a loan for the amount you need. It will be easy to get a fixed rate, which is better for you.

If you want to have the abillity to draw on credit at a moment's notice without having to hassle around trying to find a bank that will give you a loan now, a line of credit is useful. You don't have to justify what it is for...it's just available to you.

If you suspect that you or your spouse will be leaving a job, either voluntarily or involuntarily, I would recommend a HELOC BEFORE you leave the job. When you have a job, it's easy to get a HELOC; when you don't have a job, and might have a legitimate need for a HELOC, you might not be able to get one. In case of a job loss, a loan isn't useful, because you don't necessarily need or want money immediately - you want the ability to be able to access your home equity as you see fit.

We took out a HELOC in September before my husband quit his job. He now has his own business, but as of yet, we aren't making much money from it. I feel better knowing the line of credit is there if we need it, which we haven't.

(I will say that we have been living off savings for the last six months, and hopefully will be seeing some income soon. If not, we have some investments we can sell, or we *may* tap into the HELOC. We'll see.)

A caveat: look hard at the reason you want/need the loan/LOC. If it is to pay off other debts, be careful not to incur new ones!! As other posters have said - you risk losing your house if you default.

Pros: interest is tax deductible on either a HELOC or loan, in most cases. This is good, if you want to buy a car with a home equity loan, and feel confident in your ability to make payments.

Con: You can lose your house!
Many HELOCs have adjustable rates, which can be bad when interest rates are rising, as they are now. This means you can end up owing more than you expect at the most inopportune moment. (Some HELOCs allow you convert an adjustable rate LOC to a fixed rate loan.)

Good luck!

**chatterweb** · 03-25-2006, 09:53 PM

Thanks for all the advice!!
I am not going to get one any time soon, that is for sure.

My idea was to get one to write a check on and then season for 2 months in our savings account and then buy another property.
But, we must first pay off all our credit card and auto loan debt, and then we will see where rates are and prices of property.

Thanks again!!!!