Re: Warning about HELOC as Emergency Fund

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date Re: Warning about HELOC as Emergency Fund beliavsky 02-12-2008  Re: Warning about HELOC as Emergency Fund joetaxpayer 02-12-2008
Posted by on February 12, 2008, 4:21 pm On Feb 11, 12:36 pm, BreadWithS...@fractious.net wrote: > I've always been a little wary about using a HELOC > as one's only emergency fund.  It's a nice theory, > but in a real emergency - job goes away, perhaps > home equity is whacked, credit deteriorates, etc - > there was never any guarantee that the bank wouldn't > freeze the line and no further withdrawals against it > just when they are needed - not much of a safety net. > > Turns out that some folks HELOCs *are* getting frozen: An amortizing adjustable rate mortage plus a HELOC is similar to an option ARM, and in the thread "Study defends option ARM mortgages" that I started a while ago no one approved of option ARMs. With a typical option ARM, doesn't the borrower have more control? I think required payments may depend on changes in home value, but not on changes in circumstances of the borrower. I know the argument against option ARMs -- many people have used them to buy more house than they can afford. But many people benefit from the convenience of credit cards and pay off the balance monthly, while others have bankrupted themselves with credit card debt. I think the option ARMs can be useful for people who are disciplined about money. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by joetaxpayer on February 12, 2008, 5:11 pm beliavsky@aol.com wrote: > I think the > option ARMs can be useful for people who are disciplined about money. I think you are right, my friend. I think nothing (well, very little) in personal finance is black and white. I agree with Skip's "More often than not, my experience is that proponents of debt for emergency funds (and other reasons) are struggling to live within their means." But of course that doesn't address those who use it in a much better way, and it may need to better define 'emergency'. When rates were low (1% T-bill) I used my so called emergency money to drop my principal and refinance my mortgage dropping the rate and term. My savings rate is high enough that I would be able to pay back the HELOC if tapped for things like new heating system, central air blows up, etc. If my wife or I lost our job, it would be tight, but my decision has to come from the choice of sleeping better for having a large cash balance vs knocking years off the mortgage back end. Much of our portfolio is pre-tax, so even though I have cash there, my post tax funds are pretty illiquid. In the end, I'd say every situation is unique, but here BWS's warning was more about the Lender risk regarding HELOCs than the consumer. An appreciated warning. JOE -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Similar Threads Posted Re: Warning about HELOC as Emergency Fund February 11, 2008, 2:47 pm Re: Warning about HELOC as Emergency Fund February 12, 2008, 9:19 am Emergency Fund: Muni bonds or CDs November 10, 2006, 2:03 pm Emergency fund questions from brand new investor... December 8, 2006, 5:03 am stock sale / Emergency Fund question. May 28, 2008, 11:57 am Use of HELOC to fund Retirement Home During Relocation? October 7, 2006, 8:29 pm Emergency Economic Stabilization Act of 2008 October 5, 2008, 12:32 am To HELOC, or not to HELOC? May 18, 2007, 10:14 am Mortgage or HELOC January 14, 2008, 7:18 pm HELOC or Loan? April 7, 2008, 5:25 am