# Home Equity Line Of Credit Question ?



## SmkSignals (May 2, 2005)

I have a quick question. My wife and I are thinking of getting a home equity line of credit. With everything going on now-a-days with all of these bank problems, is this the wrong time to do this? The line will be with Wells Fargo. The interest seems to be competitive with other banks.

Thanks for your help.

- Kurt T.


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## justinsnow0 (Feb 5, 2007)

We had this from Wells Fargo also. If they will let you, and you fully understand the terms, why not. With ours, our rate was adjustable and it had to be paid in full in 10 years. So if you have those same terms, I wouldn't. We financed out of it to a fixed loan about a year later because the rates went up.


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## wolfwood (Sep 19, 2005)

I am not a financial advisor nor do I play one on TV. In fact, I don't even understand _most_ of what one says. But I can help with the basics of LoCs. H/Eq LoCs are really tied to the housing industry (which - yes - is tied to banks but in a different way than I think your question is asking). The amount a bank approves on an H/Eq LoC is based on the appraised value of your home (together with the owner's equity and existing mortgages/liens ) .... and now is not the best time to get a great appraisal. That being said, an H/Eq LoC is a great source of cash flow if/when you need it and the price of that which you are looking to spend it on may be lower. Also (and I haven't looked in quite awhile), the current interest rates charged may be quite high ... even if "competitive".) If you're just looking to have an LoC available for future use should want it and you're looking to get the highest LoC that you can, but don't need to tap into it now, I would think you'd do better to wait. On the other hand, our homes _can_ serve as very solid collateral for loans.


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## prevish gang (Mar 19, 2006)

I have an opinion on this, but do not claim to be anywhere near an expert on the matter, but here goes.

Most of the reason people want a line of equity on their homes is because they want to either consolidate the debt they have now because it is tax deductible or because they want to have the money handy to borrow in case they need it. Either way, I would NEVER put my home at risk by adding to it's balance. Home values have dropped but at least you have one thing that for the most part will hold its value. You NEED to have a roof over your head, but you don't need most of the stuff you WANT.

Instead, pick a bill and whittle that thing away until it is gone and then pick another one and do the same. It takes more time, but in the end you didn't fool yourself into thinking you were debt free while still spending and adding to what you owe on your true asset and in the end because it took time and pain to get yourself clear of your debt maybe you will be more careful on what you spend.

Another thing to do is put the debit card away. If you have to take the last $20 bill out of your wallet, you will think twice about what you buy. The debit card doesn't feel the same as cash and is easier to pull out for the "wants".


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## Nathan (Jan 2, 2007)

prevish gang said:


> .... You NEED to have a roof over your head, but you don't need most of the stuff you WANT.
> ...


My DW tells me if all else fails we still have a trailer to live in...


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## skippershe (May 22, 2006)

We decided to pay off our Outback and both vehicles using a home equity line, mainly to lower our total outgoing monthly payments.
We got a really good rate about a year ago, so we went for it.

Hey, it seemed like a good idea at the time...


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## 5th Time Around (Jul 8, 2008)

I am not an expert either but having been in the Real Estate market for several years, IMHO the last thing you want to do is borrow more on your house especially if you purchased in the last couple years. When it is time to sell you will be upside down and unable to bear reducing your asking price. But if you have owned your home for many years or are in a market where the values have not rock bottom, it may be worth it.

HELOC's are usually tied to the prime rate which has been running 5% and require the balance to be paid in 10 - 20 years usually for an anuual fee for the convienience of having it available. Just like mortgages, companies may sell your loan so the bank you start with is not the bank you end up with, but the terms remain the same, though the customer service may be less than desirable.

If you are purchasing a motorhome, RV, Travel Trailer, Boat or used car the rate is usually much higher than prime rate. HELOC's also allow for tax deduction of the interest. (though dealers make money off paper loans so paying cash may not be a bargaining chip)

Just some points to consider and as always just my opinion.


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## kmsjs (Apr 14, 2008)

We bought our Outback with "cash" obtained through a Home Equity line of credit. We were able to get a much better rate with the line of credit, then with a RV loan through our bank or the dealer. Since the loan is tied to the house and not your trailer, the banks can not take your trailer. On the other hand, if you default on the loan, the bank _can_ take your house







. If this happens, you still will have the Outback to live in







!

The trick to still getting a good price on the trailer, is don't tell them you are paying in cash until the negotiations are done. After you have decided on a price that you like, and it is written down, then you tell them that you are paying cash. If it is already on paper, the dealer can not change the price. They will still try and convince you that it is better to get a loan through them.

I don't know what is best with the economy right now, but this worked well for us at the time.


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## SmkSignals (May 2, 2005)

We have had our house for 18 years, so we have a bit of equity built up ... Were gonna borrow some coin for some much needed home improvements, then pay back as soon as possiable. The rate for a HELOC seems pretty good right now. Im not crazy about it being variable though ... Heck, if the interest starts climbing, well lock it into a fixed loan.

Thanks for the replies ...


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## justinsnow0 (Feb 5, 2007)

I would say that the only thing to think about in your case is, can you pay it off before rates go up to high or if you have to, will you be able to refinance at a fixed rate. I know for us, right now, Chase won't even look at an equity loan or loc. So that could be an issue if your rate skyrockets on you, you may not be able to get out of it.

Other than that, the current market really has nothing to do with this decsion. How much equity you have doesn't matter, your loc will only be what your equity is. As for adding to your mortgage, you only add to it if you use it. I know with it being more accessable your more apt to use it but if your disciplined than it's a great thing to have. And the tax deduction can be nice too.


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## go6car (Jan 19, 2004)

Be VERY careful -

We got a HELOC last year for the kid's college tuition with the idea being that our college bills come in $10-20K lump sums, and we'd use the HELOC to front the money and pay it back throughout the year. It worked well for the first year we had it.

However, this August, the mortgage company (and its a 'big name' company) FROZE the account, due to "falling house prices in this bad economy". The freeze came just as the Sept college tuition bill came in the mail.

We are good customers have a TON of equity in our house and were approved for $100K line of credit. Even with the "falling house prices in the bad economy" we still had over $170K of equity in our house! Also, our HELOC balance was only a mere 15K at the time.

This is incredibly scary for a few reasons. One, if you're doing home improvements and they freeze your account how the heck do you pay your contractors. Two, like us, where the heck to you find an extra liquid $10-20K lying around to pay for college bills on time.

The HELOC seemed like a great idea at the time. Unfortunately, we had to seek additional financing to continue paying for our kid's college. We went with a low fixed rate invitation-only bank loan. Not the best way to pay, but at least we know we have these funds available when the tuition checks come in.

In the fine print of credit lines, the banks can freeze the amount borrowed at any time. AT ANY TIME. Please learn from our very scary situation and evaluate that in light of what your needs may be.....

Good luck!


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## SmkSignals (May 2, 2005)

Thank you go6car, this is the exact kind of feedback I am looking for.

- Kurt T.


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## 5th Time Around (Jul 8, 2008)

This reminded me that when we refinanced our 1st mortgage that the bank required us to reduce our HELOC by $75K due to the decline in the housing market & because our house went down in value by over $100K from the purchase 3 years ago. If we did not reduce the HELOC the 1st mortgage company would require us to pay PMI (Private Mortgage Insurance). We had to do the reduction because we had a clause in the HELOC that it couldn't be closed for 3 years OR we would have to pay all closing cost that they paid for our 'free' HELOC which was $700. We opted to leave the line open at a lessor amount than pay back 'free' closing costs. Of course this had not been explained when we opened the HELOC, we were told there were no closing costs to open the HELOC. READ THE FINE PRINT!


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## wolfwood (Sep 19, 2005)

go6car said:


> Be VERY careful -
> 
> We got a HELOC last year for the kid's college tuition with the idea being that our college bills come in $10-20K lump sums, and we'd use the HELOC to front the money and pay it back throughout the year. It worked well for the first year we had it.
> 
> ...


Absolutely. We had the same experience (and that was more than a year ago). Fortunately, we had already used what we needed to ...and repayment had been carefully planned ... so we were okay. Still have the LoC (on the books) .... and it's still frozen


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## BeachHut (Aug 1, 2007)

As a mortgage broker, I can tell you that all the advice that you have been given here is right on. We are seeing constant upheaval with the lenders that we use...they literally are changing underwriting conditions on a daily basis and one of the most volatile products right now is the HELOC. My office recently had a client that owned their property outright and they obtained a HELOC and before we could close the deal, the equity line was frozen by the company due to market conditions.

In our dealings, Wells is relatively stable on their HELOC's right now and they did have a product that you could roll into a fixed rate after you had used the amount of money that you need. Another point to consider is to make sure the total of both your first mortgage and the equityline are well below the market value of your home. If you had to refinance the two loans together for whatever reason, the higher the loan to value the more risk you have in not being able to obtain a loan.


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## California Jim (Dec 11, 2003)

I found that bankrate.com is an excellent source for comparing rates on just about anything, and was able to secure an adjustable HELOC for 1% below Prime Rate. We have a ton of equity in our home (bought 10 years ago) and decided to set-up an account for debt consolidation. This lowered our monthly payments, gave us a tax writeoff, and will have the debt paid back sooner and with less interest than it would have been.

I am aware that a loan of this nature in the wrong hands, under the wrong circumstances, and for the wrong reasons can be down right foolish. However, done with the right circumstances can be very beneficial.

Be carefull and good luck.

OH, by the way. Wells Fargo couldn't even come close to the deal I found on bankrate.com . I have since heard Wells sold off their wholesale division and thought that they were out of the biz.

ON EDIT: I secured my HELOC about 2 years ago and things have obviously changed!


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## nynethead (Sep 23, 2005)

I have always had a home equity loan since I started buying houses. I use it in times of emergency of for big home repairs. I pay it off as soon as I can. I have 75% equity in my house now even after the big drop in prices. My original loan was from providant at .75 below prime, so i am now paying 4.25%.

The actually offer 1.01% below prime now. It is a 10 year line that at the end will turn into a fixed loan to be paide off in 10 years. they refer to it as a 10/20 loan.
It was bought out by bank one, then chase. They keep trying to get me to refinance, but chase only offer .51 below prime so I am not going for it.

I would have gone for a new 1.01% below prime with providant again, except NY charges a mortgage tax on the loan which works out to thousands on a 100K loan.

I also have a trailer loan at a higher rate, but I am not putting my trailer loan on my homes collateral, just in case anything ever happens.


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## cabullydogs (Jul 12, 2008)

You've gotten lots of advice here, not sure what more I can add. I do work in mortgage and Wells would be a good bet. I would however be careful about an equity line. You may want to look at a closed end second. I actually took a closed end second a couple of years ago to buy the T-reg, the rates were better than auto rates at that time. I have had both, but given the current market conditions I feel much after with my closed end second.

And from my experience most people think their home is worth more than it is, especially in the current market. We have a to n of equity in our home.... but even I probably think it's worth more than what a bank appraiser would appraise it at









Meredith


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## Insomniak (Jul 7, 2006)

All good advice so far.

We also just had our ability to draw from our HELOC frozen by Chase. So much for that new roof.... Wells Fargo didn't even come close to the interest rate Chase offered us.

I would add that if you do get a HELOC, be careful about the thought that you can "just convert it to a fixed loan" when rates start to rise. Most lenders have substantially higher fixed rates than their variable rates. They also are very slow to respond when lowering their rates when Prime goes down, but will jack it up in a second. Our HELOC is at a variable rate of 4.5% today, but if I wanted to convert it to a fixed rate, last I checked it was close to 7%.....


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