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Thoughts on cashing out a HELOC before recession

cv621

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Hi All,

It seems like the economy might be heading into a recession at this point. I have an available line of credit on my home that has a variable interest rate. With market downturns, there is always huge opportunity to grow wealth. I'm currently evaluating the risk/benefits of cashing out my HELOC to have my money in cash and just paying interest so that I can jump on opportunities that arise within the next few months to 2 years.

I'm thinking about cashing out because if the market were to do a downturn, the banks can choose to halt HELOCS like they did during the beginning of the COVID pandemic. Even if HELCOS aren't holted, a market downturn would effect the equity in the home therefore causing HELOC to lessen in value if reevaluated by the bank.

Has anyone else considered this option?
 
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MJ DeMarco

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I wouldn't.

That's just me, unless you have some super high rate debt and want to pay off at lower rates.

Worse, your HELOC is variable. Which means, it will go up.

Unless you have a specific purpose in mind, I simply wouldn't do it. Having some surplus cash laying around invites some loose spending. I'd bet that 9 out of 10 people who do this (with good intentions) end up just having more debt, and more stress.
 

wyattnorton

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Please don’t fall into the trap of HELOCs. If banks are pushing these now (which I see them all over the place), it is a sign to turn and run away from them… they’re bringing lambs to be slaughtered

Like MJ said, HELOCs are variable interest rates and will only go up in a recessionary environment.

Also know that having extra cash is MUCH different than having debt that is attached to an asset. You are only going to put more digits in your liabilities category and less in your assets because now you have a loan rather than an asset paid off.
 

cv621

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I wouldn't.

That's just me, unless you have some super high rate debt and want to pay off at lower rates.

Worse, your HELOC is variable. Which means, it will go up.

Unless you have a specific purpose in mind, I simply wouldn't do it. Having some surplus cash laying around invites some loose spending. I'd bet that 9 out of 10 people who do this (with good intentions) end up just having more debt, and more stress.
I see. Thank you for the perspective. The variable interest rate would definitely be a huge drain if it adjusts astronomically.
 
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cv621

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May 22, 2022
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Please don’t fall into the trap of HELOCs. If banks are pushing these now (which I see them all over the place), it is a sign to turn and run away from them… they’re bringing lambs to be slaughtered

Like MJ said, HELOCs are variable interest rates and will only go up in a recessionary environment.

Also know that having extra cash is MUCH different than having debt that is attached to an asset. You are only going to put more digits in your liabilities category and less in your assets because now you have a loan rather than an asset paid off.
Before this, I was only every considering to pull on my HELOC to buy a property that cash flowed enough to negate the interest paid on the loan. But nothing has come up yet in California
 

MJ DeMarco

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I'd only consider it if you had a defined opportunitiy with concrete numbers, that why you can look at the current HELOC rates/terms, as wall as any potential rate of return with the opportunity presented.
 

wyattnorton

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Before this, I was only every considering to pull on my HELOC to buy a property that cash flowed enough to negate the interest paid on the loan. But nothing has come up yet in California
Okay I can see this, but why not get a bridge loan instead? They CAN (not always) be a fixed interest rate, but you do run the risk of having it attached to your home.

However, now that I know you are looking to use the HELOC for an investment, I say go for it. You need to find a deal that covers the mortgage payment (obviously), but beware that you may not be able to use the HELOC as a down payment or full payment of the property.

I worked with a real estate investor that used a HELOC for a down payment. But that came also with a 15+ year relationship with his bank/banker. So, they trusted him and knew he had enough money to cover payments if the property did not perform as well
 
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