Line of credit?

[Lost_in_the_HTTP]

Without going into detail, I'm looking into home equity lines of credit. I don't not want a mortgage. I do not want money up front. I do not want payments. I want quicker access to money if I need some without applying for a loan. Basically I want to be able to write a check (for example) for a sum to do what I need. Payments would begin at that point.

I want no, or low fees, closing costs etc. with no (little) risk to the equity/property and lower interest than a personal loan.

Am I going in the right direction?

 

[herm0016]

check with your local credit union. its still a lien on your property., just like a first mortgage.

 

[Meghan54]

Sounds like you’re talking about a HELOC…home equit line of credit loan. It’s a specific loan type, usually with an initial draw period (typically 10 years but can be shorter or longer) during which you draw from the pool of equity you’ve been approved to use. During this draw period, you only make interest pmts on what you’ve drawn.

At the end of the draw period, you then begin the “true” repayment part of the loan…principle and interest, just like a typical mortgage.

Just what I’ve sorta gleaned from researching reverse mortgages.

 

[Lost_in_the_HTTP]

This is what I'm looking for using arbitrary numbers.

Let's say they allow an amount of $30K. If I draw $10K six months later, I begin making payments until that $10K is paid back. Once I finish paying it back, there should be no future payments or obligations.

If I never draw any of that $30K, I don't want any future payments or obligations.

 

[herm0016]

This is what I'm looking for using arbitrary numbers.

Let's say they allow an amount of $30K. If I draw $10K six months later, I begin making payments until that $10K is paid back. Once I finish paying it back, there should be no future payments or obligations.

If I never draw any of that $30K, I don't want any future payments or obligations.

i mean... thats how loans work.. you would pay back the 10k plus some interest and then its all good. it shows up on your credit report as unused credit which can actually move your score up by decreasing your credit use ratio.

usually you can only go to 80 or 90 % total loan to value. so if you house is worth 500k, you have a 1st mortgage of 250 ( total principle owed), you are at 50% and you can get a line of credit for about 150 to get you up to 80% loan to value.

 

[Lost_in_the_HTTP]

No mortgage. Own outright.

 

[herm0016]

No mortgage. Own outright.

great. usually there is some max amount depending on the credit union or institution before they just tell you to do a regular mortgage. dshould be super easy to get done with no 1st mortgage. walk in to your preferred bank and do it.

 

[Homerboy]

Just did this very thing this year. Opened a HELOC with Landmark Credit Union. Initial 12 month rate is 1.49% - that's practically free money.
We too have our house paid in full so the process was pretty straight forward and easy. Took out $30K line of credit. It just sits there.
I needed a few K earlier in the year for some stuff that came up. Literally just made a transfer from HELOC to checking account and the money was available immediately.
Paid that down over a few months. Wash/rinse/repeat.
Have $30K available at a few clicks of a button.

 

[Lost_in_the_HTTP]

^^^^ Application/processing fees?

 

[iRONic]

Do they really matter?

 

[woodman1999]

If you have an investment account, you could look at pledging that account. Doesn't cost you anything at the time, and whomever you trade with determines how much you can borrow depending on the value of the account. I have it with my bank, have never used it, and I never pay a dime for it until it's used. I don't remember exactly what the rate is, but it's something along the lines of LIBOR + 2%

 

[Lost_in_the_HTTP]

Do they really matter?

Fee lives matter.

 

[MtnMan]

Fee lives matter.

Especially to for profit banks.

 

[iRONic]

Sounds like you're making it harder than it should be.

Go to a couple local websites, see what the fees are, pick the one you are comfortable with...

Done!

 

[deadlyapp]

If you have an investment account, you could look at pledging that account. Doesn't cost you anything at the time, and whomever you trade with determines how much you can borrow depending on the value of the account. I have it with my bank, have never used it, and I never pay a dime for it until it's used. I don't remember exactly what the rate is, but it's something along the lines of LIBOR + 2%

I would heavily suggest against this, taking from an investment account is always a bad plan in the long run unless you mysteriously pull money out at a high in the market and then the market drops out.

I pulled some money out of an investment account in 2019 to help fund a business (only $10k) but I missed out on basically doubling that value over that time.

 

[Lost_in_the_HTTP]

^^^ But what did the business do with that $10K? Increase or decrease?

Around 4 years ago, I looked at taking some out of a 401K type account to buy a piece of equipment. The loan was at around 4%, but the account was earning closer to 10% most years.

The loan was adjustable and has since dropped to under 3% while the account has been earning closer to 15%. I've been paying enough extra each month that the loan will be paid off about 2 years early while the account has increased more than what I would have taken out.

 

[deadlyapp]

^^^ But what did the business do with that $10K? Increase or decrease?

Around 4 years ago, I looked at taking some out of a 401K type account to buy a piece of equipment. The loan was at around 4%, but the account was earning closer to 10% most years.

The loan was adjustable and has since dropped to under 3% while the account has been earning closer to 15%. I've been paying enough extra each month that the loan will be paid off about 2 years early while the account has increased more than what I would have taken out.

Oh the business has gained volume tremendously, however there were other means for me to secure a 10k loan that probably would have yielded an interest rate lower than the rate of return I would have received from the investments. Hindsight is always 20/20 and at the time I assumed I'd pay back the 10k very quickly, albeit life happens and the business needed other investment that it funded itself and didn't pay out as quickly as I expected.

 

[Homerboy]

^^^^ Application/processing fees?

$0 if you open checking/savings with them (which you'd do anyways for easy transfer of funds.
Honestly, you're making way too big of a deal out of this. Your house is paid in full, there's literally no reason not to have an open line of credit with the a bank/CU. You don't have to use it and it will only be a HUGE benefit when (not if) a large expense comes around.

 

[woodman1999]

I would heavily suggest against this, taking from an investment account is always a bad plan in the long run unless you mysteriously pull money out at a high in the market and then the market drops out.

I pulled some money out of an investment account in 2019 to help fund a business (only $10k) but I missed out on basically doubling that value over that time.

You're not taking it out of the investment account. You're using the account as collateral, so your investments still participate in any upside.

 

[deadlyapp]

You're not taking it out of the investment account. You're using the account as collateral, so your investments still participate in any upside.

I hadn't contemplated that because generally those portfolio loans have high minimums (I thought it was minimum of something like $100k, but perhaps there are lower value ones out there).

 

[Red Squirrel]

A standard line of credit should work, but if you can tie it to the house you usually get better interest. But if you sell the house you have to pay off the balance I think. I have such a credit line but I still have a mortgage. The more I pay off the mortgage the bigger the credit line gets, and once the mortgage is paid off I still keep the credit line.

It's always good to have a credit line as it does give you immediate access to credit if the need arises. I try to keep mine clear but after buying my truck and a 40 acre property I still have like 34k on it. Hoping to pay that off soon with company ESP, I paid a chunk already so waiting until tax time to see how hard I get hit with capital gains, and if I don't get hit too hard I will take out the other chunk and pay it off.

 

[Thump553]

Be sure to check out annual fees and prepayment fees. Every lender is going to recoup ALL their costs in making the loan (and the opportunity costs of tying up their loanable funds), whether they are a credit union or not. If you already are a preferred customer with a particular bank, check them out. By all means check out more than just credit unions, especially if you have a good credit rating. I used to use these as quasi unemployment insurance for self-employed, but never could find a decent one without annual fees (even if you don't borrow) and usually also have prepayment penalties to recoup their costs if you close out the account in the first three or five years (like if you sell the house or refinance it).

The idea that you will get such a loan without costs is delusional. Study the terms and see what the costs are, and whether they are acceptable to you.

And, as others mentioned, you ARE putting the home up as collateral and a credit line/HELOC IS a mortgage. A loan against an investment account may be an alternative, but those lenders can change the terms with greater frequency and margin calls seem to always come at the worst time.

 

[Lost_in_the_HTTP]

Glancing at these two .....

U.S. Bank | Home Equity Line of Credit (HELOC)

Secure lower interest rates with a U.S. Bank home equity line of credit (HELOC). Borrow funds on an as-needed basis using the equity in your home.

www.usbank.com

Home Equity Line of Credit (HELOC) | Alliant Credit Union

An Alliant home equity line of credit (HELOC) gives you the opportunity to borrow money as you need it.

www.alliantcreditunion.org

They claim no fees, but in the fine print, they bury an annual fee after the first year that may or may not apply and may be waived with other banking products.

They also tout low interest rates, but they're introductory for some short period, then increase and become variable annually after that.