Residential HELOC's at risk?

Question

Hey all. Just wondering what your thoughts are on lenders closing existing/open lines of credit, especially given what we are seeing with the markets. Anyone have experience with this from 2009?

Pat L. · Answer

Back during the 2008 housing debacle I had a line of credit drop by $25k. But I rarely used it so assumed it was that rather than them trying to pull back. We have been pestered by one of our banks for years to do a mortgage or a HELOC (prime+0.5) as everything we own is free & clear. It maybe dead/dormant/loss of opportunity equity BUT it doesn't cause insomnia & it gives the equities market the middle finger all day long :)

Jaron Walling · Answer

@David Hulit  Are we the same person? I'm doing the same thing. I already purchased the investment property but it's not completed or livable to my standards (pretty low). I have family planning to move into my current property. Thanks for the insight.

I guess I can hold off on the C8 Corvette.

David H. · Answer

@Jaron Walling

Haha nice!! Congrats on the move and best of luck getting the HELOC and renovations done!

David H. · Answer

@Jaron Walling

The bank does not care if you blow it on a sports car. You can literally transfer the funds to your checking account and gamble it all away. I don’t suggest that. But you could.

The one restriction is they want you to stay living in the property for a full year after the line is opened. So, if you are investing in a new primary residence, it may be best to wait a year. That being said, I don’t think it’s heavily scrutinized.

I’m using it for an investment property. I used the funds for part of the down payment and for the rehab. I will be eventually moving into this property as my primary for a year to maximize the house hack.

Just be sure to read the fine print on use of proceeds as I’m sure each lender is different.

David H. · Answer

@Jaron Walling

In October I got a HELOC on my primary with Key Bank at Prime - .25% so today I’m sitting at 4%, which I’m very happy about.

Key has good options too like converting the line into a fixed term loan if need be. May be worth it if the prime rate drops further if you want to lock in the rate. I’m not going that route yet nor do I plan to, but I like the option.

Also, for reference, my term is 15 years interest only then 15 year term out

Joseph Cacciapaglia · Answer

I saw a lot of credit lines get pulled the last time around, and lost one myself. I agree with @Rod Hanks that things are different right now, but we could still be heading there. I personally took some steps to boost my liquidity a few weeks ago, and I'm glad that I did. Paying interest on money you draw down today could be a low price to pay for liquidity over the next several months.

Rod Hanks · Answer

Yes I did in 2009 I had a couple of lines pulled. But this market is different it's not housing related at all and the fundamentals are strong. So I don't see that happening but I could be wrong.

Jaron Walling · Answer

@David Hulit  Thanks for the response! Are you using it the line of credit to fund more deals or rehab other properties? Does the bank care if I blow my credit on a sport car? Sounds like a HELOC is the easier route to get funding. I can't decide which is better, refinancing the primary or HELOC.

Jaron Walling · Answer

What interest rates are you guys getting today? I have good credit and low debt other than my primary mortgage. I want to open one to utilize the funds to finish a flip property. I haven't spoken to any banks but looking for opinions.

Residential HELOC's at risk?

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