I have made a grand total of 7 payments. I have zero equity. I have an excellent FIXED rate. It would be suicide to refi for a Heloc.

Does a Heloc not require a refi in this day and age? Or are they gonna try to stick it on the end as a second with some crazy rate?

What am I missing here?

Here are some pros and cons:

How about a HELOC?

A home equity line of credit, by contrast, functions more like a credit card, only it uses your home as collateral. You ask for a line of credit, and the lender assigns a maximum amount you can borrow (a credit limit). Lenders typically determine this amount by taking a percentage of your home's appraised value and subtracting the amount you still owe on the mortgage; then they factor in things such as your credit history, debt load, and income. The lender then gives you a set of blank checks or a credit card that you can use to withdraw funds.

Unlike a HEL, the line of credit allows you to borrow what you need, when you need it, up to the full amount approved. So why wouldn't everyone want to apply for a HELOC in case an emergency strikes? Take a look at the pros and cons to see for yourself.

Pros:

You don't have to borrow in a lump sum; you can withdraw the funds when you need them.
HELOCs can be used as emergency funds in the event of a crisis (like losing your job) since you can access funds on an ongoing basis as needed.
Some lenders may allow you to convert to a fixed rate of interest or to a fixed-term installment loan for part or all of your balance.
The rates of interest, though variable, may still be lower than other forms of consumer credit since they are secured with collateral (your home).
The interest on your HELOC may be tax-deductible, just as it is for the HEL, but consult IRS Publication #936 for confirmation of what applies to your particular circumstance.

Cons:

HELOCs typically have variable interest rates tied to the prime rate, so you could end up with a much higher balance owed than anticipated.
The terms of a HELOC may dictate that you must begin withdrawing funds within a certain time period and that you withdraw a minimum each time.
The costs of securing a HELOC aren't pocket change. Expect to pay for a current property appraisal, an application fee, closing costs, and other possible charges, including points on your loan. You may also be subject to transaction fees each time you withdraw money.

While the HELOC offers flexibility in terms of when you withdraw funds, there is no flexibility in terms of the end date. When the term of your loan expires, the balance of the loan is due in full. If you procrastinate or have difficulty making regular payments over the long haul, you may be hit with an excessively large bill at the end.
Lenders make it very easy to access the funds; you have to be disciplined enough to resist unless there's an emergency or a planned expenditure that's worthy of risking your home.
You may be prohibited from renting out your home, according to your loan terms.
You can damage your credit and lose your home if you're unable to repay on schedule.

Conclusion:

Before you rush to apply for a home equity loan or line of credit, first give serious consideration to whether you really need the funds. While the terms can sound enticing and the money seems relatively easy to get, it may in fact be too easy. If you've ratcheted up high-interest debt and now see your home equity as a way to deal with the problem, you need to recognize that the loan is just a temporary fix. Clearing the decks so you can start spending again would be destructive to your financial health.

Whether it's a HEL or a HELOC, consider yourself a good candidate if you have the discipline to use the funds for a dedicated purpose, you're spending the money on something of vital importance, and you can repay on time. If that's you, tapping into home equity can be a useful strategy for accomplishing your goals.


http://www.fool.com/personal-finance/home/2007/04/28/home-equity-101.aspx

Hi AC9311! (btw, what does your name mean?)

Thanks for the detailed info. From your info, I can see this being a useful tool down the road when I have built up some equity and need something big, like a new roof. But them offering it to me, at this point in time, doesn't make sense.

{ATP puts on paranoid-cynic cap}
These people know exactly who I am. I think it's shady to offer MORE credit that you know I can't afford to pay back. Especially knowing that if I have difficulties, you'll take my d@mn house! So I would be one more statistic that they can exhibit as to why we shouldn't get home loans, much less, a home loan with a decent rate.
{ATP takes off paranoid-cynic cap and goes about her day }

{ATP puts her paranoid-cynic cap back on}
To flip off Mastercard for seeing fit to increase my credit limit as soon as I paid the thing off. *Bleeping* entrapment!
{ATP, once again, takes off paranoid-cynic cap and again goes about her day }

This message has been edited. Last edited by: ATPWordPro,

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DOMS is my friend.

No, ATP ... I don't think YOU are the target of some neferous plan to separate you from your home [BTW, congratulations on purchasing a home ... While it is not/should not be considered an investment as we have been told, it is an asset].

You are receiving those offers because you have a decent FICO score [I would guess 700+] and you've paid those 7 payments on time.

With the mortgage industry imploding due to all the bad loans that were written, folks [banks, mortgage brokers, loan officers] still gotta eat, so they're aggressively seeking out folks to write loans for.

=> AC9311,

Good and simple explanation.

Hi Kweli!

I hear ya, but it certainly feels like a nefariously constructed trap to keep a Black woman down.

I don't think my FICO is that high, especially since I'm in a standoff with Sprint. I'm going to have to find my login stuff and pull my credit tomorrow to be sure.

I also hear you on the investment vs. asset idea. (Rich Dad???) I don't have the gonads to get into that. Last time I looked though, about 6 mos ago, there were lots of houses around here in the $60-$75K range. Seems like they might be good fixers to rent out.

Thanks.

quote:

Originally posted by ATPWordPro:
Hi AC9311! (btw, what does your name mean?)

The A and C are the initials of my first and last name. The 9311 is from the 1982 song, 777-9311 by the group the Time. I play drums (hobby) and that song was one of the first R&B songs that used a drum machine instead of a live drummer. In short it was the first time a drummer was outsourced, LOL.

quote:

Thanks for the detailed info. From your info, I can see this being a useful tool down the road when I have built up some equity and need something big, like a new roof. But them offering it to me, at this point in time, doesn't make sense.

It's very astute on your part to recognize that it's not a good decision to use now. Alot of people get themselves over extended by excepting all of the credit offers thrown at them. Especially when they are a new homeowners.

quote:

{ATP puts on paranoid-cynic cap}
These people know exactly who I am. I think it's shady to offer MORE credit that you know I can't afford to pay back. Especially knowing that if I have difficulties, you'll take my d@mn house! So I would be one more statistic that they can exhibit as to why we shouldn't get home loans, much less, a home loan with a decent rate
{ATP takes off paranoid-cynic cap and goes about her day }

You haven't seen anything yet. Just wait until you get one year of on-time mortgage payments under your belt. The number of offers will increase, they will be pre-approved and they will be for large amounts. Your resolve will surely be tested.

However, if you do not want the offers to come in, you can opt out. There is an 800 number on the back of all credit offers (legit ones) and if you call that number all of the offers will stop. The only problem is you will need to opt out annually. What you have realized is why alot of people particularly us, loose their homes. We borrow more than we need. Or we don't get the proper terms for our situation.

Also, congratulations on your new home. If it's your first, isn't it one of the most exciting and scariest things you have ever done?

quote:

Originally posted by Kweli4Real:

=> AC9311,

Good and simple explanation.

Thanks,

I like simplicity.

quote:

Last time I looked though, about 6 mos ago, there were lots of houses around here in the $60-$75K range. Seems like they might be good fixers to rent out.

Ahhh ... Now those would be investments [maybe].

Definitions:

Assets=anything of value

Investments=Assets that produce net income.

Best Investments= Assets that produce passive net income.

Go ahead and take it and use it to pay off those credit cards if any.

But only if the HELOC interest rate is lower than that of your credit cards debt, minus any tax deduction your would accrue. In other words, if you have significant credit card/revolving credit/credit account, e.g., student, car, boat loans, that are high interest and otherwise non-tax deductable.

I forgot to mention earlier, the best feature of a HELOC is that you don't have to tap the line of credit; however, it may lower your FICO score just a bit because it is credit that you have easy access to.

I have a HELOC that has a zero balance. It is my rainy day/the roof just caved in/I gotta get to a non-extradition country quick fund.