plugginaway22
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Post by plugginaway22 on Sept 11, 2019 6:19:23 GMT -5
I wanted to ask this smart group about getting a home equity line of credit even if you don't need it. We were advised to apply and get one just in case. Our house is paid off and we started the application with a request for a line 1/3 of the home value. DH and I are very late 50s and both with precarious job situations right now. We are on track with retirement savings. There are no fees with this loan at our local credit union if the loan is kept open for at least 3 years. If we would happen to sell the house within 3 years, we would owe about $500 to close the HELOC.
We have not signed the final paperwork, but wondering if there are any cons to setting this up if it is really not needed.
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Deleted
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Post by Deleted on Sept 11, 2019 7:51:35 GMT -5
As long as there are no costs till you use it and you're comfortable with having to carry a balance for 3 years, it seems like a good move with your precarious job situations. Can the balance be tiny? In other words, if you borrow $10K and then repay all but $1K and keep that balance for 3 years, do you avoid fees?
DH and I had one with B of A for years. It's a good "safety valve" as long as you're not tempted to use it for a cruise or to put in a swimming pool. (We'll talk you out of it!)
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Deleted
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Post by Deleted on Sept 11, 2019 7:53:27 GMT -5
I opened a HELOC about 5 years ago to have around just in case. If there are no annual fees to keep it open and no closing costs I don't see what the downside is...unless you're one that would be tempted to go buy a new boat with it 3 months later. I've never touched mine and had another one previously for a decade that I never used, but it does give me peace of mind having it there.
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Tiny
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Post by Tiny on Sept 11, 2019 11:37:01 GMT -5
I, too, have a HELOC on my primary home. I've been thru a few versions of one over the last 15 years or so. I find it to be a very useful tool for handling bigger expenses than I want to put on a CC or that I do not want to have to hemorrhage cash from my investments. Basically any kind of big expense I can pay back over 12 to 18 months. I used the HELOC for repairs to my "fixer upper" house. I used the HELOC for a downpayment on my first investment property. I just used my HELOC to pay off my CC which was filled up with a month of unexpected house expenses (a new water heater, a new toilet, a broken drain) when I had big planned expenses (a new area rug, a long weekend away, a bunch of weddings, baby showers, other life milestone celebrations). I could have pulled money from savings. But I felt more comfortable using the HELOC and cash flowing the pay down over 3 months. I've always gotten it to a zero balance before I opted to use it again. I also never "maxed" it... I'm usually using between 5K - 10K. I think the highest it ever was was 28k but that was early on (I had many house repairs).
If there are no expenses with having the HELOC (and not using it) I'd open it. It can be a very useful financial tool.
FWIW: my retired or soon to be retired siblings all opened HELOCs on their paid off homes. Eventually the house will need a roof or some other big expense will happen. The HELOC gives them some flexibility. I also have friends who have let slip that they have paid off homes and have used a HELOC to finance fix ups/remodels of their homes - with the HELOC used as a short term loan (3 to 5 years to paid off). It's a useful tool.
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resolution
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Post by resolution on Sept 11, 2019 13:46:02 GMT -5
We had looked into getting a HELOC when we first started house shopping. We were looking at fixer upper houses, and some of them require cash offers or construction loans. However we found that in Maryland, we would have to pay taxes to the state on the full amount of the HELOC, regardless of whether we actually withdrew any of the money or not. We decided not to go for it, as we didn't want to pay the tax money if we never found a use for the loan.
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NastyWoman
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Post by NastyWoman on Sept 11, 2019 13:49:33 GMT -5
We had looked into getting a HELOC when we first started house shopping. We were looking at fixer upper houses, and some of them require cash offers or construction loans. However we found that in Maryland, we would have to pay taxes to the state on the full amount of the HELOC, regardless of whether we actually withdrew any of the money or not. We decided not to go for it, as we didn't want to pay the tax money if we never found a use for the loan. Why would you have to pay taxes on money you (potentially) borrow? It is not like that is income or anything?
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resolution
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Post by resolution on Sept 11, 2019 14:10:08 GMT -5
We had looked into getting a HELOC when we first started house shopping. We were looking at fixer upper houses, and some of them require cash offers or construction loans. However we found that in Maryland, we would have to pay taxes to the state on the full amount of the HELOC, regardless of whether we actually withdrew any of the money or not. We decided not to go for it, as we didn't want to pay the tax money if we never found a use for the loan. Why would you have to pay taxes on money you (potentially) borrow? It is not like that is income or anything? That is exactly how I felt about it! It is called a recordation tax, and the county or state charges it to record the lien on the land records. Its based on the amount of the mortgage that is recorded. We would have been required to pay the tax at closing on the full amount of the HELOC, even if we never withdrew any money from it, because the lender would need that amount recorded on the records. It was around $600 on a HELOC of $60k, which is quite hefty if we never decided to use any money from the loan. We ended up getting a preapproval letter for a construction loan instead, from a different lender.
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Deleted
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Post by Deleted on Sept 11, 2019 14:24:41 GMT -5
I don't see why not but I do believe the bank can freeze the line of credit whenever they want, and that would likely be when you needed it the most.
During the housing crash I know credit card companies in some cases slashed lines of credit, personally BOA slashed one of my cards from 30k to 15k. I believe I remember hearing banks also cut back on exisiting HELOC lines of credit as well (mine didn't).
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Deleted
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Post by Deleted on Sept 11, 2019 17:20:32 GMT -5
It is called a recordation tax, and the county or state charges it to record the lien on the land records. It's based on the amount of the mortgage that is recorded. We would have been required to pay the tax at closing on the full amount of the HELOC, even if we never withdrew any money from it, because the lender would need that amount recorded on the records. It was around $600 on a HELOC of $60k, which is quite hefty if we never decided to use any money from the loan. Wow- what a racket! I bet the banking industry fought against that long and hard. It would certainly discourage most of us from taking out "just-in-case" loans. I was glad we had ours; I used it as a sort of bridge loan for some expenses in fixing up the house when DH and I downsized. Since I was one year post-retirement and DH's income was SS only, I might not have been able to get one easily when we needed it.
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plugginaway22
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Post by plugginaway22 on Sept 11, 2019 19:00:13 GMT -5
I guess that is why we are proceeding, we both currently have long term employment and high income, which could change at any time. Feels like a safety net for what I don't know. Of course there is a first 6 months teaser rate of 1.99% to encourage you to draw on it! Thanks for your thoughts.
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Tiny
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Post by Tiny on Sept 11, 2019 21:34:31 GMT -5
Here;s what the google sez: There are seven states currently charging mortgage recording taxes: Alabama, Florida, Kansas, Minnesota, New York, Oklahoma and Tennessee. Rates vary from state-to-state. The low end being states like Tennessee, where the tax is $0.115 per $100 of mortgage principal, with the first $2,000 exempt.Jun 19, 2018 smartasset.com › mortgage › mortgage-taxes
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garion2003
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Post by garion2003 on Sept 20, 2019 15:07:49 GMT -5
I have a HELOC and used it for a new roof. I think the tax code changed and the interest is only deductible if you use the HELOC for house related expenses. That said, it's still cheaper than using a credit card!
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plugginaway22
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Post by plugginaway22 on Oct 28, 2019 20:20:01 GMT -5
Update: Since this loan was approved (we have not taken any of it, nor have plans to) the junk mail arrives daily regarding life insurance to cover the total amount of the line of credit. Very annoying but guess it is public knowledge when the line is open on a paid off property.
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TheOtherMe
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Post by TheOtherMe on Oct 29, 2019 7:02:28 GMT -5
I have been getting the same kind of mail since I took out my HELOC. Goes to shred box.
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Tiny
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Post by Tiny on Oct 29, 2019 9:27:44 GMT -5
Very annoying but guess it is public knowledge when the line is open on a paid off property. It has nothing to do with the state of your property (paid off or mortgaged to the hilt or somewhere in between). It's the new line of credit (new business for the bank). It could be the bank that issued the HELOC shared this info with other companies affiliated with them (see the privacy policy) OR it could be the company that insures your home that sold or shared the info with it's affiliated companies/services (see the privacy policy) OR it could be if an update was made to your local Recorder of Deeds/Assessors Office for the HELOC (that is public info and I'm sure many companies review it often for changes so they can market their products). I get deluged with junk mail, anytime I do anything/change anything with any of the 3 houses I have mortgaged/heloc'd). The junk mail will dwindle within a few months.
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TheOtherMe
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Post by TheOtherMe on Oct 29, 2019 9:51:11 GMT -5
There was a recording fee in my closing costs, which were not even $100.
I'm sure the HELOC was recorded as it is a lien against the house.
It's easy enough to shred them.
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