Bankers, brokers, and homeowners with experience with HELOC's and the like, please step inside.

We'd like to do some upgrades, and a few repairs, to the house and with interest rates super low (for now since the Feds have stated they are going to start raising them soon), a 2nd mortgage, or HELOC or possibly another option I don't know of seems like it could be a good idea.

My mortgage broker doesn't do them, but gave me an idea of how they work and a few of the options, but he doesn't do them. He referred me to some one he's worked with for years. I trust my broker, he got me the original loan on my house in 2017, and helped me with my refi in the summer of 2020. 

What things I need to make sure I ask his referral about options? Fees? Potential downfalls?

Those of you that have done it, would you do it again? What was your experience like? etc. 

I'm looking at something in the $10-15k range. So it would easily be paid back in the next 18 months, even if I don't use the 4 bonuses I have coming up over the next 18 months. So this isn't a matter of stretching finances for something we can't afford, but more using the low interest rates to get everything done at once. 

Ask the place you use for a checking account. It might be a hair more expensive, but being able to transfer money to checking or make a payment on the HELOC with a click is pretty darn useful.

Also, ask for as much as possible. A HELOC is basically a credit card backed by your equity, so you're not paying interest unless you've actually taken money out. If you have a 25k line but only use $12k, you only pay interest on 12k but you've got a big safety factor if something goes wrong and you end up needing more than the 15k you expected.

One thing to keep in mind is that HELOCs aren't fixed rate, and we're looking a possible rate increases from the Fed later in the year. IIRC Home Equity Loans are fixed rate, but generally are designed for longer timelines than the OP talks about.

Also, I'd talk to the current lender as well to see if they have any good offers, otherwise I'd poke around bankrate and check out credit unions (for example PenFed).

I second get the most you can get approved for. It is simply a line of credit until you decide to borrow much like a card, but at a much lower rate.

We used one for the down payment our current house by getting a HELOC on the equity in our previous house.  Since then we opened another one for a large repair and have kept it since we paid it off.  We've found it handy for any big expense we'd rather make low-interest payments on.

We did not do it with our main bank, but I can see why that would be an advantage in hindsight (per Robbie's suggestion).

Devils advocate - why not save up cash and pay for it out of savings? Less than 18 months?

Another possible option, that I'm considering only because of how insane housing prices are around here, is a cash out refinance. 

My home is worth 21% more than we paid for it in 2016 and 30% more than we refinanced it for in 2020. The downside to this is that if (when?) home prices come back down in line with historical inflation, you could be underwater.

I've used a HELOC to combine the remainder of a solar panel loan and put in pool.  It was a fine transaction, but we treated it as a loan, not necessarily as the line of credit other than it let us pay the pool guy as he wanted (1/3 to begin, 1/3 half-way through, 1/3 at the end) with a check, which was nice.  Then we just paid it off in the planned time.   Then we closed the account, since we didn't have any other looming big purchases.

There's not too much to know about them other than what was mentioned above.   One neat feature of our HELOC if I recall was that it had a 4 or 5 year period where you could do your work/purchases, then it went into variable rate for the remainder of the loan period (another 5 years, I think?).   I'm not quite sure, we paid it all off in 3 years or so.  

Call around to a few banks you like working with and ask what the rates and conditions are, there's nothing too tricky that I'm aware of here.

If you know for a fact you only need $15k or so, my credit union will give you a loan on a car you own, so you pay car loan rate on a fixed amount.  It was really handy for us when we moved into this house, I "bought my Rx-8 again" and used the loan as cash towards the down payment, which was nice since most of our liquid was tied up in the old house we were selling.

Datsun310Guy said:

Devils advocate - why not save up cash and pay for it out of savings? Less than 18 months?

Because currently almost any money borrowed that isn't a credit card is at rate lower than the current rate of inflation. So theoretically $15k in repairs now will cost more in 18 months while the money I save continues to lose purchasing power. 

Boxhead, I'm not opposed to a longer term, especially when considering a fixed-rate vs variable. I was just thinking of the old "well we could go ahead and do this for another $50/month type scope creep. 

WonkoTheSane said:

I've used a HELOC to combine the remainder of a solar panel loan and put in pool.  It was a fine transaction, but we treated it as a loan, not necessarily as the line of credit other than it let us pay the pool guy as he wanted (1/3 to begin, 1/3 half-way through, 1/3 at the end) with a check, which was nice.  Then we just paid it off in the planned time.   Then we closed the account, since we didn't have any other looming big purchases.

There's not too much to know about them other than what was mentioned above.   One neat feature of our HELOC if I recall was that it had a 4 or 5 year period where you could do your work/purchases, then it went into variable rate for the remainder of the loan period (another 5 years, I think?).   I'm not quite sure, we paid it all off in 3 years or so.  

Call around to a few banks you like working with and ask what the rates and conditions are, there's nothing too tricky that I'm aware of here.

If you know for a fact you only need $15k or so, my credit union will give you a loan on a car you own, so you pay car loan rate on a fixed amount.  It was really handy for us when we moved into this house, I "bought my Rx-8 again" and used the loan as cash towards the down payment, which was nice since most of our liquid was tied up in the old house we were selling.

I don't know for a FACT, that it's all I'd need. But I would prioritize the needs over the wants. Once needs are taken care of, we move on to wants. If we don't get all the wants for $15k, I'm not sure I'd really like to do much more than that. 

For most people, a HELOC is certainly among the least expensive ways to borrow.   Folks at your credit union, or bank, would be happy to discuss particulars.  No pitfalls that I'm aware of, assuming you have sufficient equity in your home.  We've had one open for years, made one purchase against it, and paid it back.  I think it's lapsed by now, since we've not used it for about 10 years.  If I had a need to borrow, I'd most definitely do it again.

In reply to z31maniac :

Good point.  Forgot about that small problem.   LOL. 

OK, long, long LONG time mortgage person here.

How much do you need?  If it's over approx. $35,000 then just do a cash out refi of your home.  If it's under do a HELOC. 

Helocs don't have the closing costs of a refi but they have higher interest rates which adds another variable.  If you intend to pay it off in a couple of years then do a HELOC.

Rates have begun their inevitable rise (average mortgage rate for the past 50 years is 7.89%) so refinancing also makes sure your mortgage is at the lower rate too.

Heloc cost and terms vary by bank.  I went to 3 and learned that.  There are app fees, processing fees, loan closing charges and then terms for the loan.  I ended up with a no cost to start, 60 bucks to close HELOC, rate varies.  The good part is if I pay it off in less than a year it is 0 interest.  If I don't I have to do a refi and combine it with a new mortgage.  

With the amount you want the HELOC makes sense. Explain your needs to the loan officer.  Ask about costs to close.  Honestly for the amount and term interest rate will not really matter much. 2% of 10K is only 200 a year.

carguy123 said:

OK, long, long LONG time mortgage person here.

How much do you need?  If it's over approx. $35,000 then just do a cash out refi of your home.  If it's under do a HELOC. 

 

Helocs don't have the closing costs of a refi but they have higher interest rates which adds another variable.  If you intend to pay it off in a couple of years then do a HELOC.

Rates have begun their inevitable rise (average mortgage rate for the past 50 years is 7.89%) so refinancing also makes sure your mortgage is at the lower rate too.

I refi'd the house in the summer of 2020, so have a sub 3% rate. It looks like as of this morning, that's already notching closer to 4%. 

A couple of things I learned, after having a HELOC open for the last 20 years.  It is super handy, mine even came with at checkbook, or as stated just transfer from HELOC to checking.  We used it for purchasing cars, camper, augmentation, cabin.

(Wavy flashback music)  

About every seven years or so when interest rates get real low and HELOC balance too high we roll the HELOC into the new mortgage.   Then over spend with it, roll it into a new Mortgage.......  Some how I still owe almost what I paid for my house 20 year later.  However I now have a $45k addition $45k kitchen and bath and flooring, Cabin, hooters all paid for!????

What the hell am I talking about, don't listen to me, I make bad decisions.  Just last night I signed up for $23k in windows.

(Ok I'm back)

Variable rate can bite you, have a plan to pay off and stick to it.  Nothing worse than your 3% rate doubling, now your $150 minimum payment is now $300 which is set up as a 30 year term.

I just did a refi on my home with a different bank, that made my HELOC close as it was attached to my other mortgage.  I still want a HELOC so I opened one at my credit union BUT my deed was in a trust, so I had to get the deed out of the trust and put it back when we were done attaching the HELOC to it.  Same process for the refi.  A tangent but be aware if you have a trust. 

Now more coffee

Here's something I learned in FL in 2009... If you establish a heloc right before a big real estate crash, don't be surprised to get a letter from the lender stating your $30k heloc became a $2k heloc. Since they're based upon equity. 
 

Tip #2: if you find yourself choosing to finance meals, cars, fake boobies for thirty years- you probably should not make that purchase.  

I have no regrets.

Maintaining debt allows me to invest more.  My debt costs me 3% my investments earn 10%. By not paying off my mortgage I have more money to invest.  The only problem is I don’t have much cash.

Help me understand this, I bought my house for $135k still owe 115 after 20 years. Now it’s worth 350k so they keep lending me more money.  Leveraged the equity to buy a cabin that is worth at least 100k and paid off.  

So my 135 original loan now has at least 450k in value not to mention the other perks.

None of this was intended to be long term loans it just worked out that way.

Most of my HELOC purchases did get at least paid down some before rolling into a fresh mortgage.  Mostly I just get scared of the adjustable rate panic and refi.

Is any of this helping?

Basically get one set up and use it for easy cash but only for 3-5 year pay off.   If left unused they may try to charge you a $50 per year service charge but I got four of those waived just for asking.

^That's good stuff. I do like the idea of having it as an emergency fund, just in case. I don't leave a lot of loose cash around because it's constantly losing to inflation regardless if that number is high or low.

Life is real.  I have no shame.

As somebody who works in a very large Credit union (in auto lending), I highly recommend you look to the largest neighboring credit union for whom you will qualify (by residency, employment, etc).

The nature of how a credit union runs is to benefit the members.  You'll often find competitive rates, lower fees and less red tape.  

I've worked for gigantic national lenders too and I can assure you the person at your credit union will work harder for you that the guy at gigantor Bank will.

In reply to Loweguy5 (the Neon is gone!) :

Totally true.  That is why I left the bank, SWMBO and I both belong to credit unions.

I have one with my local credit Union. We used it a few years ago to put bathrooms in the house. I had the cash available to pay for them but it would have left us too close. We paid the whole thing down in about 18 months and it is sitting there. I'm looking at buying a used vehicle now and it's nice to know you have an open account to buy against so I can get one car and sell the current one without having all the cash out there or having to get a car loan. 
A lot of good advice above. Credit union = good, extra available money =good. Not being overextended = super important.