Should I use the funds in my HELOC before market declines?

11 Replies

Hello BP, 

I do NOT have a good feeling about the next 6-12 months in regards to money in general in the U.S. I have a feeling the dollar value will drop dramatically, stock market same, and in general I just feel a financial crisis is on the horizon. Some very smart money people (billionaires) are buying precious metals like crazy, and that's not a good sign for what they think the value of the dollar will be. I currently have a HELOC where the money is just sitting there waiting for me to use it, which I have not yet.

Although I don't need the money at the moment, I'm wondering if I should just pull say 25% of it out anyway in case the market goes south and I don't have access to it anymore because they froze the funds. I'd rather have it and not need it than need it and can't touch it. I don't think I'm fully understanding with the downside would be to taking out money I don't need at the moment. I'm also pretty disciplined so I don't worry that if I have it I will spend it on something silly. 

Thoughts?

Originally posted by @Curtis H. :

Hello BP, 

I do NOT have a good feeling about the next 6-12 months in regards to money in general in the U.S. I have a feeling the dollar value will drop dramatically, stock market same, and in general I just feel a financial crisis is on the horizon. Some very smart money people (billionaires) are buying precious metals like crazy, and that's not a good sign for what they think the value of the dollar will be. I currently have a HELOC where the money is just sitting there waiting for me to use it, which I have not yet.

Although I don't need the money at the moment, I'm wondering if I should just pull say 25% of it out anyway in case the market goes south and I don't have access to it anymore because they froze the funds. I'd rather have it and not need it than need it and can't touch it. I don't think I'm fully understanding with the downside would be to taking out money I don't need at the moment. I'm also pretty disciplined so I don't worry that if I have it I will spend it on something silly. 

Thoughts?

 If you are disciplined and put the money in a "safe" status, it would probably give you some buffer if things happen as you say.

Keep in mind that the "smart" money (hedge funds) have billions they have to make a profit on for the investors. That is tough for them to do right now. I speculate you aren't worried about Billions and anything under $1,000,000 to invest is pretty safe in real estate in most markets away from the coastal cities in my opinion. The most serious threat to wealth right now is the Bond market and indeed many hedge funds are moving out of Bonds. If you want continuing good coverage of the various investment strategies of the "big boys" try ZeroHedge . com It's free.

Account Closed

Thanks for the website referral. Yeah I think I would feel better if I took out enough for 6 months of expenses to go along with what I already have for emergency funds.

main downside is that you will need to begin makin payments on the amount you pull out ...HELOC rates are normally tied to the prime rate ...this rate has increased several times in the past year and is expected to increase another .5% - 1% in the next year ...so this could begin to get to be a pricey way to keep 25k in your bank account

@Dave Skow

Very good point. That is a down side as most recessions follow rises in interest rates. Meaning if the event I'm worried about does happen, interest rates will probably be pretty high. All that being said, if that $25K gets me through an additional 6 months that I otherwise would not have been able to, it's money well spent. 

I wouldn't try to time the market. Folks have been predicting a crash now for 8 years. Also, the chance of your HELOC ibeing frozen is low if your still within your time horizon [e.g., 5 - 10 years].

Updated almost 3 years ago

I stand corrected. I did some research, and during the crisis, most lenders closed HELOCs if they were at $0 withdrawn, or froze them if there was a balance. They have to have a rationale, which is usually a drop in the value of your home (which can be argued with an approved appraisal) or a DTI issue. Ref: https://www.hsh.com/home-equity/when-your-line-of-credit-is-cut-or-frozen.html

@Curtis H. My take on a downturn (which will happen, but no one knows when) is to buy right, do what you do normally and when that day comes, hope your properties are not affected enough to put you under water.

Obviously this question is different. What were your original intentions opening up the HELOC? What good does pulling the 6 months of reserves - is this for investment property or just personal? Either way, if 6 months reserves is what you want, I would recommend saving more until you have it, rather than using the HELOC for it and getting stuck with higher interest. Maybe take it out now, save hard until you can replace that 25K or 25% (not sure which, you said both) with your savings and put the HELOC money back ASAP.

@Frankie Woods

Yup, that is exactly what I am worried about. It's not like a NEED the money, but I'd rather have it and not need it. Yes I'll pay interest on it, but I understand that. 

@Grant Rothenburger

The simple answer for pulling the reserves is...I just would rather have it, not touch it since there is no emergency need for it, pay a bit of interest for the piece of mind, and put it all back when things settle down. I honestly don't think I'll need it, but piece of mind has no price tag. If I can not worry, and get my wife to not worry, that's priceless. Truly. Because when she's worried, she's just going to drive me crazy anyway with her worrying :-)

I feel you. You have to be able to sleep at night. The great thing about real estate is that there is no "right" answer. I am about to take out a HELOC myself to have the option to draw on it and to provide some asset protection. Dave Van Horn talks a lot about this.

Keep in mind that if a crisis is going to happen, you will probably see the writing on the wall and have time to draw before they start to freeze (e.g., I can almost guarantee you will see articles on BP to that effect). In fact, you might want to set up some keyword alerts (e.g., HELOC, Freeze, etc.) instead of taking it out and paying interest. But, like you said, at the end of the day, you have to be able to have peace of mind if you want to keep your hair.

Updated almost 3 years ago

This is a pretty good article too. Kinda inbetween what you where thinking and what I was thinking. Ref: https://www.houselogic.com/finances-taxes/financing/home-equity-line-of-credit-shut-down/

Updated almost 3 years ago

And this re: https://www.mybanktracker.com/news/heloc-frozen-reduced

@Curtis H. , if your bad feeling about the next 12 months proves to be justified, I'm not sure that having (only) 6 months worth of reserves will be enough to ride out the storm. I agree with @Grant Rothenburger , saving would be a better priority, rather than hoarding borrowed money that'll cost you significant interest from day one.

Or, the trick is: find out how you can put that HELOC to work immediately so that its ROI will be greater than its cost! ie. Even in this bubble, there are investing opportunities out there.

Taking out a HELOC purely to cover an anticipated future shortfall in income, will never get you "bigger pockets"! [And are you sure that you both have the required discipline?] Good luck...

@Brent Coombs

Yes I am saving as well, and actively looking for other places to invest my money other than sitting in a bank, which I don't think is totally safe either these days. In regards to the required discipline, yes I am pretty good with money so I'm not worried about that. I do agree with @Frankie Woods that if a crisis is approaching I'll likely see it coming and will have time to make a move. 

Originally posted by @Curtis H. :

@Frankie Woods

Yup, that is exactly what I am worried about. It's not like a NEED the money, but I'd rather have it and not need it. Yes I'll pay interest on it, but I understand that. 

@Grant Rothenburger

The simple answer for pulling the reserves is...I just would rather have it, not touch it since there is no emergency need for it, pay a bit of interest for the piece of mind, and put it all back when things settle down. I honestly don't think I'll need it, but piece of mind has no price tag. If I can not worry, and get my wife to not worry, that's priceless. Truly. Because when she's worried, she's just going to drive me crazy anyway with her worrying :-)

I understand that! I guess my overarching point here is: Is it really peace of mind if the interest rate goes up 2-5%? To me, that adds one more thing to worry about. On top of that, what if for unforeseen reasons, you did have to use the funds and can't just put them back now that the interest is higher - now you've only added to your debt obligations and made your situation worse. 

Just some thoughts.