WHO HOO People will start to live within their means

What a concept...paying back a Heloc.....i love it!

i have an undrawn Chase Heloc, and haven't heard a word about this, as a matter of fact, i got a reminder a day or 2 ago about what a great rate i currently have, and if i thought of using it for vacation/home improvement, etc

Dave,

Are you SURE they are closing down HELOCs entirely? That just doesn't sound right. Could it be they are shutting off broker originated loans & pulling everything in-house? Or, selectively withdrawing from heavily declining markets? I've been unable to confirm that they're shutting down the entire division company wide?

/tricia

Is this what you're talking about?

Email from Chase Wholesale channel-

"As we continue to analyze and manage our product set, Chase has made the decision to discontinue offering our Subprime and Home Equity products through our Wholesale channel.

New Wholesale Subprime and Home Equity registrations will not be accepted after Friday, May 16, 2008."

Lady,
that would be it.
Dave Donhoff
Leverage Planner

Just curious --- can you advise with regard to an undrawn HELOC with Wachovia? I've had it for a couple years (anticipating purchasing a commercial property that is long gone) but was recently thinking of withdrawing to make improvements on another property.... should I go ahead and withdrawl a portion? I've heard of this HELOC closing condition for awhile and wonder if it's moving through all banking institutions (just a matter of time?).....

Hi Funkill,

I've heard of this HELOC closing condition for awhile and wonder if it's moving through all banking institutions (just a matter of time?).....

Based on current observations, I believe the odds are strong that this is exactly the case; That many more (most? all?) open-ended HELOCs above a certain original loan-to-value level (what that would be, I have no idea) will become frozen.

If you have any reason or desire to keep control of that liquidity, I suggest it very wise to sweep it out of the HELOC balance and into a seperated account at a different bank (just to keep it clean.)

Luck,
Dave Donhoff
Leverage Planner

Thanks Dave. Appreciate your time.

Dave, are you saying to "sweep" out the heloc line,place it in an interest bearing account at another institution, then pay the "line", which will likley carry an interest rate much higher then the interest generated from the interest bearing account?

Hi qdognj,

Dave, are you saying to "sweep" out the heloc line,place it in an interest bearing account at another institution, then pay the "line", which will likley carry an interest rate much higher then the interest generated from the interest bearing account?

NO... I see no reason to use a seperate interest bearing account that is "much" lower than your carry costs.

Most folks with HELOCs have them at Prime (which is now 5%,) plus or minus up to 1% (so, net cost, 4-6%.)
After tax deductibility the real costs are roughly 20-40% less than that.. or, 2.4%-ish to 4.8%-ish.

Plain ol' checking accounts are paying 3-3.25%...

Other safe side accounts with principal guarantees (such as CDs, Guaranteed Investment Contracts, Exchange Traded Notes, Annuities, and Insured Indexed Cash Accounts) offer even higher minimum guarantees, and/or market-tracking returns to the stock indices with guarantees against any loss.

My advice;
Play it safe!
Cash is security.

Don't risk losing the majority of your net worth and good credit to avoid 1-2 years of 0-1% net carry cost (interest paid minus safe interest received on the cash in seperated growth accounts.)

Don't lose the war for the savings of a nail*.

Cheers,
Dave Donhoff
Leverage Planner

(*Benjamin Franklin in "Poor Richard's Almanac":

For want of a nail, the shoe was lost;
For want of the shoe, the horse was lost;
For want of the horse, the rider was lost;
For want of the rider, the battle was lost;
For want of the battle, the kingdom was lost,
And all for the want of a horseshoe nail.)

Dave, i always enjoy your posts, and find them informative at the very least..But as you point out that "net" interest rate on the Heloc is 2.4%ish-4.80% ish, isn't the same true on the "returns" you state at

"Plain ol' checking accounts are paying 3-3.25%...

After paying taxes on this, your "net" return is much less..
Hence,your statement

"avoid 1-2 years of 0-1% net carry cost (interest paid minus safe interest received on the cash in seperated
growth accounts.)"
isn't entirely correct?.. and what is likley to adjust faster, the rate on the Heloc or your cd/bank account, my opinion is the Heloc

Thanks for your thoughts in advance
Qdog

Dave, isn't there also a "cap" on the the value of HELOC which the interest can be tax deductible? If i recall properly, 100k was the maximum loan (HELOC,2nd loan) that interest could be deducted...And isn't there a limit on the combination of both 1st loan mortgage and Heloc?

Once again, thanks in advance
Qdog

Hi Qdog,
As I explained, there are many higher-yielding alternatives to a plain ol' checking account... but even at worst, the net carry between most HELOCs and a checking account is a point or two.

As for tax deductibility of interest, it isn't so much a question of the loan type, but whether it was used as acquisition debt, or established after the home was already purchased (home equity debt.)

HELOCs that were used for acquisition are included in the $1MM limit. Susequent cashouts after purchase are restricted by the $100,000 limits. Cashouts above $100,000 may further be tax deductible conditional on the documented purposes for the funds.

Disclaimer; Always check with your tax gurus... IANACPA ;~)

Cheers,
Dave Donhoff
Leverage Planner

so drawing down my heloc(significantly over the 100k limit) isn't going to work vis-a-vie tax deductibility, as it is over 100k, and isn't being used for anything, except liquidity? what ya think,?

Qdog

Dude, you have a heloc over 100k? Owie.

Like the thread, Dave. :)

Qdog,
Only you know the degree of risk you face relative to your actual (not potential) liquidity, and the value of the net worth you have exposed.

If your costs of liquity, net of your returns on quick cash employed, are greater than you asset's value to be protected... then perhaps you leave more of your net worth open to loss risks, and sleep like a baby.

Everyone has to weigh out for themselves what they are willing to lose, and what they are willing to commit in costs of protection from loss.

Cheers,
Dave Donhoff
Leverage Planner

over 350k, but hasn't been used

i wouldn't be surprised to find it lowered soon,as it really makes no sense to the bank to have that kind of cash available to a homeowner

A blog I follow has several posters saying their $200k HELOC's were just lowered to about $60k by WaMu.
Fortunately I closed all my HELOCs last year.

cmarlin20,why is it fortunate you closed your heloc's? I don't understand...If my bank reduced my heloc,it really wouldn't phase me at all, as i have never used it

Has it ever occurred to you that maybe LESS DEBT is a good idea?

================
cmarlin20,why is it fortunate you closed your heloc's? I don't understand...If my bank reduced my heloc,it really wouldn't phase me at all, as i have never used it

listen dick,err Richard,i have NO debt with the Heloc, so reducing the limit of heloc isn't very important

Maybe we should start stocking up on alcohol, tobacco, firearms and canned goods to use as barter.....

cmarlin20,why is it fortunate you closed your heloc's? I don't understand...If my bank reduced my heloc,it really wouldn't phase me at all, as i have never used it

Really, the only reason I think it is fortunate that I closed it then is because now that many have been lowered, I'm glad I wasn't counting on it for any reason. My first one was low for several years. I got it to use as a down to buy another house, when I sold it and moved back to my original home, I paid it off.
Now that I've sold another property I have cash so I doubt I'd need a HELOC anytime soon. As Dave said, I like having them... just in case.
They never cost me anything to get, they are good insurance.
My $200k HELOC was at the limit the whole time I had it, so they wouldn't reduce my "unused amount". It was great until the end, then the rate went up quite a bit. But it gave me cash to make a very good property investment.
I agree with Dave, credit used wisely is a good thing.

I just received a mail solicitation for a Chase HELOC at 4.48% APR valid through June 17.

cmarlin, thanks for clarification

Ok, trying to figure this out, a bit. Qdog's HELOC is a "potential" debt of 350k, not an actual debt? As in, the bank says, any time you want to come pull this out, just show up and we'll give it to you because you've done the paperwork?

If his net worth's big enough that the bank is willing to extend him that much credit, then it's probably not much of a dent in his overall net worth, I think.

Personally, I would never do a heloc, but an untapped heloc from my perspective doesn't seem very, um, worrisome? If qdog woke up tomorrow and that line dropped to 60k, then that's not a big deal, I would think...

disneyrsh, a heloc isn't debt until you use it. It is an available line of credit. It isn't money the bank gives you right then and there and you start paying it. It's not a mortgage.

I have a heloc I just added to (up to the limit they extend - depending on how much equity you have in your home and the assessed value of the home) and "re-did" with my bank. Since I added to it they gave me a really good rate.

I haven't drawn on the heloc in a couple years, but I have one just in case I want to make that RE investment or what have you.

I believe in living debt-free, but I also like to have all my options open.

Someone on another forum just had their unused heloc closed out, so I asked my bank if that was a possibility on mine and they said it wasn't a worry at this time.

The banks are just tightening their belts and making their reports look more conservative now. Correcting themselves.

disneysh, exactly as you stated..I have the ability(for now,lol) to draw against that line of credit(heloc)..Have not used it ever, prefer to pay cash as we go on improvements, etc..BUT, it is always nice to know it's there..If it was reduced tommorrow, not a big deal...

disneyrsh: "If his net worth's big enough that the bank is willing to extend him that much credit, then it's probably not much of a dent in his overall net worth, I think."

It has absolutely nothing to do with his "net worth." The line of credit is secured by the amount of equity in the home. Hence the name: Home Equity Line of Credit (HELOC).

Your net worth is absolutely affected by how much equity you have in your home.

That, at least, I do know because Microsoft Money keeps telling me I'm worth a lot more than I think I am every month, LOL...

For a guy to have 350k heloc, he's probably got a pretty hefty net worth outside of the equity in his house. I'm betting that even if you did have 350k equity, if you had zany bad debt and no assets anywhere else, you wouldn't get that HELOC. Or, maybe you would. That's probably part of the problem, maybe?