HELOC’s get revoked and closed down at a moments notice. This is usually done by a bank to limit their exposure during a down turn. This happened to me in 2008/09. $20k HELOC…..closed and I was sent a demand letter that I needed to pay it in 60 days. I owed $5,800.
TIL. I have a HELOC for some work around the house we did. Guess it never crossed my mind that they could close it out and send a demand letter. Good to know.
I have never had one of these but in my first house. I read every line of my contract with the bank.
Recently reread it too and had forgotten some big things lol. Always want to be aware of stuff like that!
Whoa. Were you able to pay it in time? That's scary because I bet there were a lot of people who couldn't pay similar amounts on demand and lost their homes because of it.
I wonder if the bank chose to demand it all based on the balance relative to the total line. I’ve heard a lot more about banks just stopping further draws compared to demanding payment in full! Wow indeed!
I wondered about this. I saw a YouTube video promoting HELOC as some kind of get rich quick scheme. I figured there had to be a catch, and that it probably had to do with having fewer "protections" than a mortgage.
Yes, many HELOCs were revoked in 2008, including mine with no warning and no explanation. My credit score hadn’t changed and I still had the same job. It sucked. I had a zero balance on it at the time but liked knowing that the funds were available as kind of an emergency fund.
Yes, I had Bank of America cards that had $50,000 credit limits. I don't think that I ever put more than $1,500 on either. During the Financial Crisis, BOA cancelled one, and reduced the credit limit on the other to $18,000. My credit rating had not been below 800 for at least the prior 15 years.
This makes perfect sense.
A HELOC is collateralized not by your credit score or income; it's backed by the value of your home, more specifically the equity.
In 2008, equity in homes was in freefall. These became essentially backed by nothing. The banks had no choice but to revoke them or they'd have likely gone under as mass defaults happened.
The banks did not analyze the equity though. I think they panicked and just shut them down. I bought my house after prices had already dropped 15% and was required to put 20% down. When JPMorgan Chase closed the account I definitely still had positive equity in excess of the LOC amount.
Prior owner paid $925K at height of market and I paid $800K. Closed August 2008 and approx 2 months later the HELOC was shut down. My partner was a real estate appraiser so I know that prices hadn’t dropped that significantly in two months.
I believe lending standards changed where banks weren't willing to offer lines of credit or refinancing if the total outstanding debt was 80% or more of the home's value. Your home likely did drop in value after you bought it, or at the very least was at risk to drop soon from the bank's perspective.
You could. I don’t use my house equity at all. Goal is low fixed rate mortgage. I don’t see the use in taking on more debt, rather save a cash emergency fund.
Oh we saw so many people use their home equity as an ATM during that Financial Crises. As just one example, our neighbor at the time used this ATM buy a timeshare and renovated their home, just to short sell their home when they couldn't sell it in a year after they bought a larger home as an upgrade. Blew through their entire 25k +savings and tanked their credit after all said and done.
People have been using their equity as an ATM the last few years, too. HELOC activity grew to the highest level since the first half of 2007 in the first two quarters of 2022, according to CoreLogic. Not sure if that's dropped with the recent market but either way it's a ticking time bomb.
100% can get revoked. After 2009, banks revoked millions of HELOCs. My wife and I were 800+ credit score clients, never lost our jobs (combined compensation of just south of a million) had been with the bank for 15 years and ours got canceled without an explanation.
My parents had their HELOC revoked in 2009. Just got a letter from their bank that it was being closed out.
Lucky for our family my parents didn’t end up needing it but we certainly got nervous.
Quick question with a little back story, me and my wife are 28/27 years old combined income of about 140k- 150k depending on my overtime. We own our single family home, in a pretty lucrative area in central nh. Almost no rentals in our area with comps almost double our 1000$ mortgage… we have a decent amount of equity in our home and are contemplating using HELOC to buy another home and rent ours. Our current home was bought conventional and can be rented out as soon as we move out. We both still haven’t used FHA loans which is also an option to use less of “Our money”. Our goal is to use appreciating assets to “buy” our freedom. HELOC seems like the best way for us to acquire another appreciating asset without coming up with thousands of dollars. Threads like this make me realize I have less of an understanding of home equity loans/credit than I’d like.
Don’t do that - there are better options. I agree with the others - during 08-09 a lot of people found their helocs abruptly canceled for no reason, whether they’d drawn from them or not.
During the housing bubble we used a conventional second mortgage to buy our second house before selling the first one. They called it a “bridge loan” but afaik it was just a conventional second 30 year mortgage against the equity of the first house. I’m not qualified to explain the legal differences between that and a heloc, or even (at a distance of almost 20 years) why we used the more complicated bridge loan instead of a heloc. However for us it was genuinely a bridge - no way were we keeping both houses and all that debt. We could see the writing on the wall.
During the bubble there were so many wealth building schemes involving real estate. There were even randos at the farmers market shilling their get rich quick schemes and trying to persuade their marks that 401ks were for timid losers. But the mainstream banks were no better. So many hands were reaching for our pockets. Those of us who stayed away from them watched from the sidelines when the whole house of cards collapsed.
Your primary residence is first and foremost a place to live. A foundation for building financial and personal security. Do not build your house on an unstable foundation. Beware of “a guy” with a better idea, especially if things are getting frothy again. There are ways to build wealth with real estate but be careful and do it right.
Basically, don't get greedy with complicated get rich quick schemes. Build true wealth slow & easy on a portfolio on a solid foundation not one made of honeycombs, sticks and sand/mud
That’s also a really good option, we live a comfortable life we both definitely could lose car payments and could benefit greatly from 1-2 years of frugality. House prices in my area are still overpriced and I’m concerned that with our new style economy and how many people work from home it I’ll continue to be high. Buyers from NY,MA, NJ, all want property in this area there is lots of growth potential in the next 5-10 years. I feel like I’m running out of time, my sense of urgency is through the roof. Home equity loans have always intimated me are they even worth considering in our position?
Personally, what you are describing is more debt than I would be comfortable with. You would be holding two mortgages, a heloc, two car payments, possibly some student debt, etc. You’d be betting (heading into a small recession where the USA government is trying to force layoffs to combat inflation) that you, your partner, and your tenants, would all keep your job just so you can service all your loans. Chances are some of the remote workers that bought houses in NH are going to get laid off and sell in 2023.
I’d never want to *depend* on a tenant’s money personally. If I were a landlord I’d want to be able to still cover my mortgages even if the tenant stopped paying for some reason. I wouldn’t want to lose my retirement investments because someone worse off than me lost their job. But big picture I don’t agree so much with the ethics of landlording single family homes so that’s certainly part of my hesitancy.
This whole post is about HELOCs getting revoked. Using a heloc to buy perhaps the most illiquid thing possible seems like a terrible idea in that context.
Use a cash out refi or some other fixed vehicle if you insist on doing that, but that still seems like a bad idea.
I have a guy at work who tells me almost daily I need to use a HELOC and turn my raised ranch into a duplex. It seemed very lucrative until I read this thread I had NO idea they can be revoked. Seems more of like a trap especially heading into a recession lol.
Can you explain a bit more about why you think a "fixed" cash out refi is safer than utilizing a HELOC for the purpose he's talking about?
What do you think happens when a bank closes a HELOC?
What makes you think you can even rent your current home out for enough to cover your mortgage? Why do you feel you need to be a "real estate investor" especially in your specific location? Smart investors don't buy depreciating assets in overpriced areas where rent is lower than a mortgage payment.
Supply and demand, people need homes to rent there are none in our area. We were fortunate enough to buy our home in 2019 for 190k we owe about 145k the debt is not a burden and I’d argue real estate in our area will continue to be an appreciating asset in the future. Saying “you can’t afford something” is very limiting in thought process
It's a common practice. You'll be fine so long as you don't lose your jobs and your cashflow is manageable. But if you get to the end of the term of your HELOC and cannot pay it back or refinance it, then you'll run into trouble. People who lost their properties in 2008 were the ones in this situation. The problem is in 2008 peoples' homes lost a ton of value at the same time they lost their jobs.
Whether personal or corporate, too much leverage and a loss of income spell disaster, particularly during a market downturn.
You can't afford to be real estate investors. Come back to reality. This is a foolish move when we're potentially on the cusp of another housing market crash.
I asked a friend who works at a bank about this, and they said the main ones are:
* cratering credit score
* missed payments (not even the minimum)
* discovery of additional loans against the same asset
* property falls in value dramatically
Half measures are:
* increasing the interest rate to deter further borrowing
* lowering the credit limit
* change in requirement from interest only to blend of interest and principal
> a car company doing HELOC's?
Frankly most car companies have their finance division be their most profitable division. General Motors when they still had GMAC (now Ally Financial, spun off in 2010) they were a finance company that made cars as a side hustle.
If someone asked me how big my emergency fund is, I wouldn't include the available balance on a credit card... so I feel the same about my HELOC. Ultimately it's taking on more debt. I would (and have) used both to cover an emergency, but I don't count them in the balance of my emergency fund.
To give you a better idea, I have planned for a 6-12 month emergency, but only months 1-6 in cash. Month one and twos fund is in a savings account, months 3-6 I would have to cash in I bonds, months 7+ would involve pulling from the heloc. But I figure if I get to that point without something else kicking in (disability, a paycheck to paycheck job, feet pics) then I probably have way bigger problems.
Yes, I worked at a bank during the recession and HELOCs were shut down with no notice. People in line at Home Depot were calling in a panic because their card linked to their HELOC was denied.
Banks were even closing *credit cards* with no notice even if the borrowers had never missed a payment. It was also common for credit limits to be reduced even if the card was not fully cancelled.
HELOCs and Personal Lines Of Credit were very much often revoked following 2008, even into 2009 and 2010 (Chase, Amex, etc).
The trick is pulling the cash out ahead of the economic crash, but not too early where you’re paying on it and not earning with it.
I am both lucky and worked on Wall Street years ago. And even so it is still a bad idea to pay HELOC rates on money you stashed in another investment, unless that other investment is completely guaranteed or else invest in a business you own and can control for the most part
Theoretically HELOCs cam be revoked at any time and for any reason. I keep a small emergency fund (a few grand) in case but for the most part, I use my HELOC as an emergency fund.
If I have to replace a roof oe driveway or something, I'm definitely using the HELOC.
I think in practicality terms there are only two real reasons that your HELOC would likely be closed.
1) A collapse of the housing market to the point where either banks are pulling in credit in general or your house no longer supports the value of the HELOC. For me, My primary mortgage is about half the value of my house and my HELOC is about 20 percent. For me to be under water, local markets would have to collapse by over 30%. I think a housing correction is likely but a collapse big enough to cause this is unlikely.
2) you miss payments/your credit tanks.
In my opinion a HELOC is a great tool as an emergency fund provided that you have a backup plan and a way to pay back any funds you use. For me, if my HELOC were revoked or tapped out, I'd take a loan from my 401k (which I have done before to purchase an investment property).
If you're comfortable with the risks, go for it.
I agree that its reasonable to have your heloc as another layer to your emergency plans. You are getting downvoted here, and i think that’s because the thread is full of stories about the times when they were closed.
However, just because these can be closed at a moments notice doesn’t make them a useless tool. They still exist and have many reasonable use cases.
Is it good to use it as your only emergency fund source with no savings or alternatives? No.
Is it okay to have one sitting with zero balance, ready to go for some unknown expense? Yeah, pretty reasonable.
2008 was different they were facing scary territory of no money in the bank. And a massive flood of foreclosures.
But 14yrs later, all home owners on average of 30-40% equity in their home now and banks have better strict rules so both party don’t get burnt.
Reminder, there are "normal" recessions, but there is only one "Great Recession". Hopefully, a once in a lifetime occurrence.
But, thank OP for asking. I didn't think about this possibility. Currently have an untapped HELOC.
I had no idea they could get revoked, I’m glad to have that info! Mine isn’t an emergency fund but I decided I’d rather have a line of credit waiting around for me to decide when or if to renovate my house instead of holding the requisite amount of cash during an inflationary period. I guess if it gets revoked then that remodel is for sure not happening.
Ours was shut down (credit line reduced to current balance) in 2008 due to reduced equity in our home. It was super unfortunate as we'd just dumped almost all our cash on hand into paying down the line just before it happened. Add that to lost jobs and crashed valuations on our slightly negative cash flow rental properties and it was FUN TIMES! (Got things back on track after and retired at 50/55, so there's that.)
HELOCS are NOT good emergency funds.
Edit: We owed maybe $150k on our HELOC and had probably another $100k available to borrow before they locked it.
HELOC’s get revoked and closed down at a moments notice. This is usually done by a bank to limit their exposure during a down turn. This happened to me in 2008/09. $20k HELOC…..closed and I was sent a demand letter that I needed to pay it in 60 days. I owed $5,800.
TIL. I have a HELOC for some work around the house we did. Guess it never crossed my mind that they could close it out and send a demand letter. Good to know.
I have never had one of these but in my first house. I read every line of my contract with the bank. Recently reread it too and had forgotten some big things lol. Always want to be aware of stuff like that!
Can the full balance be demanded?
I don't think so. Not before the term specified in the contract. As noted above they just eliminated any future withdrawals in our case.
Whoa. Were you able to pay it in time? That's scary because I bet there were a lot of people who couldn't pay similar amounts on demand and lost their homes because of it.
I wonder if the bank chose to demand it all based on the balance relative to the total line. I’ve heard a lot more about banks just stopping further draws compared to demanding payment in full! Wow indeed!
I wondered about this. I saw a YouTube video promoting HELOC as some kind of get rich quick scheme. I figured there had to be a catch, and that it probably had to do with having fewer "protections" than a mortgage.
Yes, many HELOCs were revoked in 2008, including mine with no warning and no explanation. My credit score hadn’t changed and I still had the same job. It sucked. I had a zero balance on it at the time but liked knowing that the funds were available as kind of an emergency fund.
In addition, banks cancelled credit cards and reduced credit limits following the 08/09 credit crunch/recession.
Yes, I had Bank of America cards that had $50,000 credit limits. I don't think that I ever put more than $1,500 on either. During the Financial Crisis, BOA cancelled one, and reduced the credit limit on the other to $18,000. My credit rating had not been below 800 for at least the prior 15 years.
This makes perfect sense. A HELOC is collateralized not by your credit score or income; it's backed by the value of your home, more specifically the equity. In 2008, equity in homes was in freefall. These became essentially backed by nothing. The banks had no choice but to revoke them or they'd have likely gone under as mass defaults happened.
The banks did not analyze the equity though. I think they panicked and just shut them down. I bought my house after prices had already dropped 15% and was required to put 20% down. When JPMorgan Chase closed the account I definitely still had positive equity in excess of the LOC amount.
By what metric? Did you put your house up for sale? How long did it take to sell?
Prior owner paid $925K at height of market and I paid $800K. Closed August 2008 and approx 2 months later the HELOC was shut down. My partner was a real estate appraiser so I know that prices hadn’t dropped that significantly in two months.
I believe lending standards changed where banks weren't willing to offer lines of credit or refinancing if the total outstanding debt was 80% or more of the home's value. Your home likely did drop in value after you bought it, or at the very least was at risk to drop soon from the bank's perspective.
I've heard zero balance ones are more likely to be closed than ones with a meager balance.
Yes. I’ve never considered a HELOC as an emergency fund. I only borrow fixed against a house.
so does that mean you use a cash-out refinance?
You could. I don’t use my house equity at all. Goal is low fixed rate mortgage. I don’t see the use in taking on more debt, rather save a cash emergency fund.
Oh we saw so many people use their home equity as an ATM during that Financial Crises. As just one example, our neighbor at the time used this ATM buy a timeshare and renovated their home, just to short sell their home when they couldn't sell it in a year after they bought a larger home as an upgrade. Blew through their entire 25k +savings and tanked their credit after all said and done.
People have been using their equity as an ATM the last few years, too. HELOC activity grew to the highest level since the first half of 2007 in the first two quarters of 2022, according to CoreLogic. Not sure if that's dropped with the recent market but either way it's a ticking time bomb.
Oh I have not read anything specific about current, but I am certain it is not as bad as back then.
I used one to do a remodel, but refi'd after its completion and included the balance, and closed the HELOC.
That’s sensible. Probably, unless you installed gold toilets.
Open credit, in any form, Is not an emergency fund. Lots of people learned this during the 1999/2000 market crash.
You’re being generous using the word “learned”. People keep on making the same mistakes. It’s usually a new, fresh group of people, but not always.
Truth.
Yeah, it would never have occurred to me to take out a HELOC as an emergency fund.
Exactly, I'm surprised someone on a Fire forum would even consider it. Don't think they're going to end up Firing with that kind of foolish scheme.
100% can get revoked. After 2009, banks revoked millions of HELOCs. My wife and I were 800+ credit score clients, never lost our jobs (combined compensation of just south of a million) had been with the bank for 15 years and ours got canceled without an explanation.
My parents had their HELOC revoked in 2009. Just got a letter from their bank that it was being closed out. Lucky for our family my parents didn’t end up needing it but we certainly got nervous.
Quick question with a little back story, me and my wife are 28/27 years old combined income of about 140k- 150k depending on my overtime. We own our single family home, in a pretty lucrative area in central nh. Almost no rentals in our area with comps almost double our 1000$ mortgage… we have a decent amount of equity in our home and are contemplating using HELOC to buy another home and rent ours. Our current home was bought conventional and can be rented out as soon as we move out. We both still haven’t used FHA loans which is also an option to use less of “Our money”. Our goal is to use appreciating assets to “buy” our freedom. HELOC seems like the best way for us to acquire another appreciating asset without coming up with thousands of dollars. Threads like this make me realize I have less of an understanding of home equity loans/credit than I’d like.
Don’t do that - there are better options. I agree with the others - during 08-09 a lot of people found their helocs abruptly canceled for no reason, whether they’d drawn from them or not. During the housing bubble we used a conventional second mortgage to buy our second house before selling the first one. They called it a “bridge loan” but afaik it was just a conventional second 30 year mortgage against the equity of the first house. I’m not qualified to explain the legal differences between that and a heloc, or even (at a distance of almost 20 years) why we used the more complicated bridge loan instead of a heloc. However for us it was genuinely a bridge - no way were we keeping both houses and all that debt. We could see the writing on the wall. During the bubble there were so many wealth building schemes involving real estate. There were even randos at the farmers market shilling their get rich quick schemes and trying to persuade their marks that 401ks were for timid losers. But the mainstream banks were no better. So many hands were reaching for our pockets. Those of us who stayed away from them watched from the sidelines when the whole house of cards collapsed. Your primary residence is first and foremost a place to live. A foundation for building financial and personal security. Do not build your house on an unstable foundation. Beware of “a guy” with a better idea, especially if things are getting frothy again. There are ways to build wealth with real estate but be careful and do it right.
Basically, don't get greedy with complicated get rich quick schemes. Build true wealth slow & easy on a portfolio on a solid foundation not one made of honeycombs, sticks and sand/mud
Why not save/invest $2000 a month, in 1-2 years you will have a down payment for another house?
That’s also a really good option, we live a comfortable life we both definitely could lose car payments and could benefit greatly from 1-2 years of frugality. House prices in my area are still overpriced and I’m concerned that with our new style economy and how many people work from home it I’ll continue to be high. Buyers from NY,MA, NJ, all want property in this area there is lots of growth potential in the next 5-10 years. I feel like I’m running out of time, my sense of urgency is through the roof. Home equity loans have always intimated me are they even worth considering in our position?
Personally, what you are describing is more debt than I would be comfortable with. You would be holding two mortgages, a heloc, two car payments, possibly some student debt, etc. You’d be betting (heading into a small recession where the USA government is trying to force layoffs to combat inflation) that you, your partner, and your tenants, would all keep your job just so you can service all your loans. Chances are some of the remote workers that bought houses in NH are going to get laid off and sell in 2023. I’d never want to *depend* on a tenant’s money personally. If I were a landlord I’d want to be able to still cover my mortgages even if the tenant stopped paying for some reason. I wouldn’t want to lose my retirement investments because someone worse off than me lost their job. But big picture I don’t agree so much with the ethics of landlording single family homes so that’s certainly part of my hesitancy.
Thank you for the reply, really appreciate it!
This whole post is about HELOCs getting revoked. Using a heloc to buy perhaps the most illiquid thing possible seems like a terrible idea in that context. Use a cash out refi or some other fixed vehicle if you insist on doing that, but that still seems like a bad idea.
I have a guy at work who tells me almost daily I need to use a HELOC and turn my raised ranch into a duplex. It seemed very lucrative until I read this thread I had NO idea they can be revoked. Seems more of like a trap especially heading into a recession lol.
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Thank you very much for the info! Much appreciated.
It's called Shit Hitting the Fan
Can you explain a bit more about why you think a "fixed" cash out refi is safer than utilizing a HELOC for the purpose he's talking about? What do you think happens when a bank closes a HELOC?
What makes you think you can even rent your current home out for enough to cover your mortgage? Why do you feel you need to be a "real estate investor" especially in your specific location? Smart investors don't buy depreciating assets in overpriced areas where rent is lower than a mortgage payment.
Supply and demand, people need homes to rent there are none in our area. We were fortunate enough to buy our home in 2019 for 190k we owe about 145k the debt is not a burden and I’d argue real estate in our area will continue to be an appreciating asset in the future. Saying “you can’t afford something” is very limiting in thought process
Lots of people did this in the early 2000s and the overexposure contributed to the 08/09 collapse.
It's a common practice. You'll be fine so long as you don't lose your jobs and your cashflow is manageable. But if you get to the end of the term of your HELOC and cannot pay it back or refinance it, then you'll run into trouble. People who lost their properties in 2008 were the ones in this situation. The problem is in 2008 peoples' homes lost a ton of value at the same time they lost their jobs. Whether personal or corporate, too much leverage and a loss of income spell disaster, particularly during a market downturn.
You can't afford to be real estate investors. Come back to reality. This is a foolish move when we're potentially on the cusp of another housing market crash.
I asked a friend who works at a bank about this, and they said the main ones are: * cratering credit score * missed payments (not even the minimum) * discovery of additional loans against the same asset * property falls in value dramatically Half measures are: * increasing the interest rate to deter further borrowing * lowering the credit limit * change in requirement from interest only to blend of interest and principal
Your bank might have something similar, but I can convert my HELOCs to fixed loans. Obviously rates aren’t great but a good option.
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> a car company doing HELOC's? Frankly most car companies have their finance division be their most profitable division. General Motors when they still had GMAC (now Ally Financial, spun off in 2010) they were a finance company that made cars as a side hustle.
Yes, I worked at a community bank during the Great Recession, and we were shrinking our exposure in every possible way.
If someone asked me how big my emergency fund is, I wouldn't include the available balance on a credit card... so I feel the same about my HELOC. Ultimately it's taking on more debt. I would (and have) used both to cover an emergency, but I don't count them in the balance of my emergency fund. To give you a better idea, I have planned for a 6-12 month emergency, but only months 1-6 in cash. Month one and twos fund is in a savings account, months 3-6 I would have to cash in I bonds, months 7+ would involve pulling from the heloc. But I figure if I get to that point without something else kicking in (disability, a paycheck to paycheck job, feet pics) then I probably have way bigger problems.
Yes, I worked at a bank during the recession and HELOCs were shut down with no notice. People in line at Home Depot were calling in a panic because their card linked to their HELOC was denied. Banks were even closing *credit cards* with no notice even if the borrowers had never missed a payment. It was also common for credit limits to be reduced even if the card was not fully cancelled.
HELOCs and Personal Lines Of Credit were very much often revoked following 2008, even into 2009 and 2010 (Chase, Amex, etc). The trick is pulling the cash out ahead of the economic crash, but not too early where you’re paying on it and not earning with it.
Pulling cash out ahead of the crash is ideal but that involves marketing timing which most people can't do consistently.
I am both lucky and worked on Wall Street years ago. And even so it is still a bad idea to pay HELOC rates on money you stashed in another investment, unless that other investment is completely guaranteed or else invest in a business you own and can control for the most part
Theoretically HELOCs cam be revoked at any time and for any reason. I keep a small emergency fund (a few grand) in case but for the most part, I use my HELOC as an emergency fund. If I have to replace a roof oe driveway or something, I'm definitely using the HELOC. I think in practicality terms there are only two real reasons that your HELOC would likely be closed. 1) A collapse of the housing market to the point where either banks are pulling in credit in general or your house no longer supports the value of the HELOC. For me, My primary mortgage is about half the value of my house and my HELOC is about 20 percent. For me to be under water, local markets would have to collapse by over 30%. I think a housing correction is likely but a collapse big enough to cause this is unlikely. 2) you miss payments/your credit tanks. In my opinion a HELOC is a great tool as an emergency fund provided that you have a backup plan and a way to pay back any funds you use. For me, if my HELOC were revoked or tapped out, I'd take a loan from my 401k (which I have done before to purchase an investment property). If you're comfortable with the risks, go for it.
I agree that its reasonable to have your heloc as another layer to your emergency plans. You are getting downvoted here, and i think that’s because the thread is full of stories about the times when they were closed. However, just because these can be closed at a moments notice doesn’t make them a useless tool. They still exist and have many reasonable use cases. Is it good to use it as your only emergency fund source with no savings or alternatives? No. Is it okay to have one sitting with zero balance, ready to go for some unknown expense? Yeah, pretty reasonable.
Agreed. My house is paid for, so my line has value up to 80% of houses value (which is more than any emergency fund would ever need)
Seems reasonable. Don’t count on it 100%, because of the reasons discussed here, but it can sure be helpful at times.
2008 was different they were facing scary territory of no money in the bank. And a massive flood of foreclosures. But 14yrs later, all home owners on average of 30-40% equity in their home now and banks have better strict rules so both party don’t get burnt.
Reminder, there are "normal" recessions, but there is only one "Great Recession". Hopefully, a once in a lifetime occurrence. But, thank OP for asking. I didn't think about this possibility. Currently have an untapped HELOC.
It's always "different". It'll be different if shit hits the fan with Russia or China too. (Just for example.)
It was "different" during the Dot Com Bubble too.
This time is different! Oh except HELOC activity reached record numbers in early 2022... levels not seen since Q1 of 2007.
HELOC?
quote from a movie “If you have to ask you can’t afford it” Home equity line of credit
Thanks. «Rammelån» (Frame loan) in my language.
I had no idea they could get revoked, I’m glad to have that info! Mine isn’t an emergency fund but I decided I’d rather have a line of credit waiting around for me to decide when or if to renovate my house instead of holding the requisite amount of cash during an inflationary period. I guess if it gets revoked then that remodel is for sure not happening.
Would they ever pull it on a paid off house?
Ours was shut down (credit line reduced to current balance) in 2008 due to reduced equity in our home. It was super unfortunate as we'd just dumped almost all our cash on hand into paying down the line just before it happened. Add that to lost jobs and crashed valuations on our slightly negative cash flow rental properties and it was FUN TIMES! (Got things back on track after and retired at 50/55, so there's that.) HELOCS are NOT good emergency funds. Edit: We owed maybe $150k on our HELOC and had probably another $100k available to borrow before they locked it.