Hoarding your Line of Credit

[masraum]

Originally Posted by cab83_750

Ok., let me put some scenarios/examples:

Type A person:
6 months worth of cash (for rainy days): $24,000.00
Monthly mortgage and expenses: $4,000.00
Mortgage balance: $224,000.00

Type B person:
1 month worth of cash (pays a lot of extra towards mortgage): $4,000.00
Monthly mortgage and expenses: $4,000.00
Mortgage balance: $204,000.00

Both persons bought the same house, the same mortgage beginning, same interest rate, same job security, same concerns, etc.

If Type B withdraws from his HELOC $20,000.00, deposits the $$ into the bank, aren't the conditions equal at the end?

Well, there's the point that Scott (Scott's wife) made. But then there's more to consider.

So, my guess is that the Type A person has always been focused on minimizing debt, living below their means and being smart with their money. The Type B person is like the other 90% of the population, not concerned with debt, happy to charge that 52" plasma to watch football, living right up to their means.

If you consider what type of people would likely end up in the circumstances that you describe, the situations are probably skewed again. Also, it seems that because of the Type A person's previous thinking, they'd be unlikely to go for this scenario, but the Type B person would think it's a great idea.

In the end, you'd end up with the Type B person owing on the house, several credit cards, and a couple of cars. All of their bills added together would probably just match their normal monthly income. But the Type A guy has probably been paying stuff off with every pay check and putting a little in the bank every month.

[cab83_750]

Originally Posted by masraum

Well, there's the point that Scott (Scott's wife) made. But then there's more to consider.

So, my guess is that the Type A person has always been focused on minimizing debt, living below their means and being smart with their money. The Type B person is like the other 90% of the population, not concerned with debt, happy to charge that 52" plasma to watch football, living right up to their means.

If you consider what type of people would likely end up in the circumstances that you describe, the situations are probably skewed again. Also, it seems that because of the Type A person's previous thinking, they'd be unlikely to go for this scenario, but the Type B person would think it's a great idea.

In the end, you'd end up with the Type B person owing on the house, several credit cards, and a couple of cars. All of their bills added together would probably just match their normal monthly income. But the Type A guy has probably been paying stuff off with every pay check and putting a little in the bank every month.

Are your reference to each of the person correct? Or are you switching Type A with B, and vice versa?

[Macroni]

I did the opposite took excess money market cash and paid down my mortgage. It is a conservative 6% return.

[fintstone]

Bottom line...if you really need money; no one will loan it to you. If one had significant potential to lose their job or have other serious downturn, they would be well served to borrow in advance while their credit is good...to enable them to weather a short-term loss of employment/financial emergency.

[Soterik]

Well, my wife (a commercial mortage broker) and I have already had this conversation given that WaMu will give us 5% on a CD (can't remember the term), and my HELOC is about 4%..... we're tempted to pull all the $$ and throw some into the CD, and the rest into a savings acct.

We downsized about a year ago at the height of the local market....got out just in time. We bought into a nice smaller home, something that we could pay the smaller mortgage on if either one of us was no longer employed. That's about the point we are at right now given that my wife hasn't done a deal in 3 months.

It's not going to get better for quite a while.....I think I'm going to yank the HELOC... my Porsche's aren't quite as liquid..

E

[Chocaholic]

Be careful about jumping out of the market. It's very low now, and with a bit of patience, will recover (like it always does). No sense getting out while the market is low...that makes no sense. And, if you bought in several years ago, you could get hit with capital gains taxes depending on your cost basis.

[on2wheels52]

My house is paid off. Should I find out how much I can borrow on it?
Doesn't sound like a good idea to me.
Jim

[cab83_750]

Originally Posted by Soterik

Well, my wife (a commercial mortage broker) and I have already had this conversation given that WaMu will give us 5% on a CD (can't remember the term), and my HELOC is about 4%..... we're tempted to pull all the $$ and throw some into the CD, and the rest into a savings acct.
.....
......

It's not going to get better for quite a while.....I think I'm going to yank the HELOC... my Porsche's aren't quite as liquid..

E

Plus the HELOC is tax deductible.