Hoarding your Line of Credit

[cab83_750]

A few of my neighbors have lost their LOC. They recommend that if you still have it, "pull it out before it gets taken away!!!!"

Anyone agrees with this? Has anyone done this? If you are cash-poor and equity-rich, will you hoard? Given the economy, will you hoard?

BTW, I have been in my house since 1991 and so-far somewhat exempt from the housing upside-down crisis?

Thanks.




I am editing for the read-lazies and the WTF's:

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?

[Burnin' oil]

Hoard borrowed money? I don't think so. I do not understand the whole "pulling cash out of my house" mentality.

[onewhippedpuppy]

Borrow money to sit on it at a lower interest rate before your market value drops? Isn't that essentially TRYING to become upside down on your home? Planning for foreclosure?

[cab83_750]

Originally Posted by onewhippedpuppy

Borrow money to sit on it at a lower interest rate before your market value drops? Isn't that essentially TRYING to become upside down on your home? Planning for foreclosure?

Both of them lost their jobs a few months ago. One is doing intermittent consulting. The other one found a full time job paying 25%+ less than what he used to make. Not sure if they are planning for f/c.

So far the neighborhood is pretty same (at least to me) as far as houses for sale. In a 5-mile route, I saw 3 houses for sale; so, f/c would be a surprise to me.

[Heel n Toe]

Originally Posted by cab83_750

A few of my neighbors have lost their LOC. They recommend that if you still have it, "pull it out before it gets taken away!!!!"

Are you talking about a HELOC? If so, it depends on if you have something worthwhile you need it for.

I've got one and am wondering if I ought to take about $4K out and toss it into my credit union savings account that I am using as a home and car maintenance fund, because we needed a new reroof yesterday.

I figure if my bank freezes my HELOC and some kind of nasty storm blows off half of my brittle, aged shingles, I would be SOL.

Of course, I could always approach the credit union for a loan, but they could freeze up, too.

[masraum]

pulling money out on a LOC seems insane. That's the sort of thinking that put us in this position in the first place.

[notfarnow]

Originally Posted by Burnin' oil

Hoard borrowed money? I don't think so. I do not understand the whole "pulling cash out of my house" mentality.

We've used our HELOC a fair bit in the past 2-3 years, but always in a "revolving door" kinda way, not a "ratcheting up our debt" kinda way.

It's handy for us, because we've got an old house, old cars and my wife's family cottage. Lots of old stuff means lots of "surprises". It'd be great to just have a pool of cash saved up to cover this stuff, and then keep it topped up, but right now paying down my wife's student debt is a priority. So in the meantime, we use the LOC for unexpected expenses. We try to plan carefully, but some expenses just come out of nowhere. Such is life, and that's what credit is for. We use it, and pay it back.

Ultimately, if we needed to take a large advance off the LOC just to float and feel comfortable with our expences... hell, I think we'd sell and downsize. There's worse things in life.

[Rick Lee]

My HELOC was suspended over a year ago. I don't have any pressing cash needs, but I'd be in a world of hurt if my wife or I lost our jobs and/or my tenants stopped paying. And I'm truly worried for our jobs because of the potential for payroll accounts to get crushed. I doubt many large employers are going to give their employees any kind of heads up when, not if, this happens.

[HardDrive]

Hoarding borrowed money.....wow. Just when you have thought the lunacy can't go any deeper...

[cab83_750]

Originally Posted by masraum

pulling money out on a LOC seems insane. That's the sort of thinking that put us in this position in the first place.

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?

[Rick Lee]

When the SHTF for real, there will be no more HELOC's. Whatever you got in your FDIC-insured account is all you'll get. The question is how long do you wait before getting cash advances on your credit cards or using your HELOC? It's truly a use-it or lose-it thing.

[MT930]

Hoarding borrowed money WTF does that mean?. Please explain this.

Does not work like it used to, your collateral source the (house) is declining in value.

[cab83_750]

Originally Posted by MT930

Hoarding borrowed money WTF does that mean?. Please explain this.

Does not work like it used to, your collateral source the (house) is declining in value.

Agreed 1000% - but only if you bought your collateral less than 10 years ago, or you already borrowed against your property that your 1st, 2nd, 3rd, etc. sums up to more than what your house is worth.

[cab83_750]

Originally Posted by Rick Lee

When the SHTF for real, there will be no more HELOC's. Whatever you got in your FDIC-insured account is all you'll get. The question is how long do you wait before getting cash advances on your credit cards or using your HELOC? It's truly a use-it or lose-it thing.

So, you do agree with my neighbors! Are my neighbors smarter than us Pelicans?

[scott540]

OK, this got me thinking so I asked my wife about it who's smarter than me and is also a mortgage banker.

The guy would achieve the same results as far as money in the bank but his monthly payment will be much more that Guy #1 because he now has the $4,000 monthly expense and the additional payment on the equity line, probabay at a highter interest rate too . She, like me, thought it was an interesting but not so good idea. He has a lot more rainy day money but he's paying for it through interest. Maybe better off to stick the additional payment in savings

[cab83_750]

Originally Posted by scott540

OK, this got me thinking so I asked my wife about it who's smarter than me and is also a mortgage banker.

The guy would achieve the same results as far as money in the bank but his monthly payment will be much more that Guy #1 because he now has the $4,000 monthly expense and the additional payment on the equity line, probabay at a highter interest rate too . She, like me, thought it was an interesting but not so good idea. He has a lot more rainy day money but he's paying for it through interest. Maybe better off to stick the additional payment in savings

Scott,

Your first paragraph was the one who made me smile. You must be a good husband for a) conferring with her and b) admitting she is smarter.

[Rick Lee]

Originally Posted by cab83_750

So, you do agree with my neighbors! Are my neighbors smarter than us Pelicans?

I'm not saying it's morally right or a beacon of personal responsibility. I'm talking in real SHTF terms. At that point, a lot of stuff goes out the window and cash will be king.

[HardDrive]

This post is insane. The fact that we are even discussing this madness....that does it, I'm having more scotch....

[cab83_750]

Originally Posted by HardDrive

This post is insane. The fact that we are even discussing this madness....that does it, I'm having more scotch....

Forget scotch. Give me Heineken anytime.

It is somewhat interesting to find out that Pelicans find this topic insane or WTF. Look at the Mortgage Banker wife...she found it interesting. What happened to all the Pelicans who kept saying "cash is king." I think this post is the opposite or the continuation of Nostatic's current 'paydown' thread.

I am no investor or banker, but the fact of the matter is:
1. Person A has been paying the minimum, resulting to a semi-fat bank account. Let's not forget that paying the minimum results to Person A paying a lot of interest in the frontend.

2. Person B has been quickly paying down his mortgage resulting to lean bank account. Paying extra results to lesser interest in the backend.

3. If Person B takes $20,000.00. Sure he gets the monthly plus the HELOC payment. I think at this point the table turns (Person B pays more in interest than Person A). But think about it, is this not the 'point of equalization?'


4. If Person B does not take $20,000.00, the economy gets wacked, no lending takes place, he loses his job, then is he not screwed?

5. Same as #4, economy gets wached, no lending takes place, Person A loses his job, then he is comfy for 6 months.


Maybe I should sermon my neighbors for sharing the idea. They had it coming anyway: kids in private school, brand new MBs, new Accord for the 16-year-old teenager, etc.

[turbo6bar]

cash is king. borrowed cash is not quite king, but still nice.

If Ben Bernanke and company decided to drop the fed funds rate 250 basis points to -0.5%, the prime rate would hit 2.5%. In this case, it make actually be a worthy trade, an arbitrage of sorts (ie. borrow money at 2.5%, pay off mortgage at 6%). After all, it's working really well for those investment banks.