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I’ve never seen this in any financial column anywhere:
I’ve told all my kids and anyone else who’ll listen to setup a HELOC on their home “just in case”. You never know when you’ll need cash, like when you’ve lost your job, and if you ARE jobless you won’t be ABLE to get a HELOC.
Notice I didn’t say Home Equity Loan. There is a difference between the two. I won’t go into that here, you can research that yourself.
A HELOC is a MUCH cheaper way to borrow money than using a credit card or a car title loan AND it costs you nothing to setup and keep “on the shelf”.
Another resource is to setup a whole life insurance policy but only with a non-direct recognition MUTUAL company. They buildup cash valve fast that you can use for emergencies if needed. If you research “infinite banking” you can learn about this.
Here is a brief discussion on HELOC interest deduction
https://www.investopedia.com/mortgage/heloc/tax-deductible/
Be aware of the tax deductibility rules for interest on a HELOC, they changed in 2017. The interest is not always deductible.
I am on year 9 of my HELOC, some years I have no balance. We most recently used it to purchase a new car and will have it paid off by the end of the year. When I set up the HELOC, interest payments were considered as mortgage interest and thus they are still tax deductible when you itemize. I will be sorry when the HELOC term ends in year 15. The interest rate is adjustable and set to prime plus 1.5 %.
We will be using a HELOC when we change our deck into a three season porch. This will allow us to finance some of the cost over a few years without having to exceed the 12% tax bracket.
Does anyone know if there is a lender that consistently offers low cost/ no cost HELOCs? Haven’t had a chance to research yet.
Isn’t that what having an emergency fund of 3-6 months living expenses is for? Would I want to go into debt if I lost a job?
It can be a backup if your emergency fund gets completed.
The two things are not mutually exclusive. Diversity assists once again by providing choices. My HELOC costs nothing unless I use it. Hard to beat that price for quick access to 1 to 250k.
I’ve always been envious of the US HELOC product. If it was a thing in the UK I’d certainly have one.
I obtained a HELOC years ago when I knew I was going to lose my job after the company I was working for did not get their contract renewed. I didn’t know about them until a friend in town who worked for bank told me. I considered this insurance in case I was unable to find another position for an extended period of time. Luckily it was never needed. The HELOC closed when we sold our house and we did not get another on the retirement home we built. From my investment reading I believe it was a mistake not to have one in retirement as a contingency “fund”.