HELOCs. Do you have one? How does it work? Does it make sense for me?

[SonorityGenius]

I always thought getting the HELOC now when your equity is at 20% is smarter move than waiting for market to fall further, when you can only get out lets say 15%

HELOC rates are low vs car loans and other private loans people get themselves into, and if it minimizes payments and makes it actually AFFORDBABLE to pay down the snowballing debt, I think HELOC is the smarter way to go than 19% on your AMEX

[Anonymous]

not trying to argue, but your logic is to take out what you can in equity now while it is still there because it might disappear if the market drops?  That is exactly the reason that this is a bad idea.  Say the OP does a HELOC.  They are still going to have the car payment as they just want to pay off enough to refi it at a lower rate (not pay it off from what I understood).  Then they are going to do some repairs that they have admitted they could do either with cash or on cards and PIF within 6 months.  Homes are not ATM's or investments, they are your place that you live.  Why risk that.  Anything that has a lien against you rhouse can cause you to loose said house if you default.  The only upside for OP is saving some interest on the home improvements over the next 6 months and saving some interest on the car payment (assuming they pay off the HELOC realtively quickly).  The possible downsides are tying up the equity you have unnecessarily, adding someone else as a lien on your house that could come back to haunt you, putting you outside of certain help programs shoudl something happen (some mortgage relief programs will not handle people with HELOCS or cash out refi's), and having a higher debt payment than currently owed because you would have a heloc payment, car payment, and mortgage. 

If the worse case scenario happened (job loss, transfer, financial emergency), the OP would be stuck with a HELOC, a car payment, mortgage, and normal bills as well as cc bills.  If no heloc was taken, the OP could in a worse case scenario BK and loose that car/cc debt and still retain the home with a decent mortgage rate due to not having a HELOC.

On top of that 20% equity is still barely enough to sell the house, pay commissions, concessions, and put a DP on another house (maybe not enough)  I think the OP is lucky to have solid equity and a strong enough financial position that the short term interest savings would not justify the risk.  If things continue to go well for them, the cc charged renovations would be paid off this calendar year and they could proabably pay enough down on the car to refi within a decent timeframe and still save the home equity. 

If they had 40-50% equity, it would be alot less risk.

[Desert-Rat]

I'm no expert by any stretch, but..........

mickey is right on!

However,  I'd get the HELOC, if the interest rate is good, and only if it reported as revolving.  If the terms dictate that you have to take a draw from it, do so and pay it off the next month with the proceeds..  You'll no doubt get statements every month with checks attached.  Sock drawer them!  It's money in the bank.  You're not drawing interest, but you're not paying any either.  Consider it rainy day money, and pray for sunshine!  (I haven't used mine in 7 years, but it's there if a REAL emergency arises.)

The home improvements, unless they're for safety reasons, can wait until next year.  Take the $$ you were going to pay to CC's and attack the up-side down car loan, and soon, you will be able to refi at a much better rate.

Something to consider, and I have no idea what kind of h/i you have in mind, the big box stores (Lowe's/Home Depot/etc) offer 6-12 month "interest free" sales on purchases over a certain amount.  That may be another option.  Just keep in mind that if it's not paid by or before the due date, you'll owe ALL of the interest, and it's stiff!

Good luck with any decision you make,

D-R

[Phoenix-rising]

Still thinking and weighing options.

The home improvements will be ongoing and sporradic.  Projects are DH's way of relaxing and de-stressing after work.  He works hard at work and takes a lot of pride in our home.

Last October we needed to replace the washer/dryer.  At Christmas the hot water heater started leaking and we had to get a new one.  Last month we bought a dishwasher and a riding lawn mower.  Then we painted and tiled one of the bedrooms to make it into an office.  Now he's remodeling the guest bath.  Then he'll paint the living room.  Eventually he'll build a shed out back for the tractor so I can use the garage for my car.  We'll redo the master bath at some point.  He wants to add crown moulding throughout the house.  We want to put granite countertops in the kitchen.  This list could be never ending.

We both work hard.  We both make good incomes.  The worst case scenario would be if one of us got a debilitating disease that kept us from being capable of working, but barring that we both have jobs that are as secure as can be and we have highly marketable skills.  We have life insurance.  We don't live in an area of the country that was hit hard by the housing market decline or heavy layoffs.

DR - you said you'd get the HELOC.  What were your reasons for saying that?  I know I read something on one of the FICO forums that $50k seems to be the cutoff point for HELOC's to be considered revolving.

As far as I can see, if we use and pay off, use and pay off the HELOC like we did with credit cards in the past, the HELOC should work out better because the interest is lower AND it's tax deductible.

Worst case scenario, if we fell on hard times couldn't we could pay off any outstanding balance on the HELOC with a balance transfer check from a credit card?  Wouldn't that save us from the risk to our equity?

[Phoenix-rising]

BTW, thank you all for your feedback.  I appreciate all your input.

[Anonymous]

the risk in what you are saying is that likely in hard times, the CC checks will not be there.  CC companies are slashing limits left and right the minute anyone gives them a reason to.  Also, Heloc's if utilized as revolving credit, can hurt your score if the balance runs a high util % as they are factored into utilization if under 50K I believe. Also, opening a new HELOC alone can be enough reason for the CC companies to cut your cc limits, etc. 

The one poster was saying you should get one and not use it.  The added line of credit along with the high "available credit" will help you keep your utilization low.  I never personally thought opening a credit line for the sole purpose of raising your scores was that great an idea but to each their own.  I guess my thought boils down to you an not count on the CC's to bail you out in a pinch because people with perfect credit histories are loosing their credit lines every day.  So, I would not want to tie down my equity counting on CC to bail me out in a pinch.  Especailly so when it is not really necessary.  that said, to each their own and it seems like you guys have a pretty solid financial base so in all likelihood it would work our either way. It come down to a personal preference, I would never touch my home equity for something I could pay for otherwise.