Home Equity Line of Credit at Your Disposal
“You have to be as fully prepared for the dull game as you are for the great game, or else you won’t be prepared for the great one.” – Red Barber
Mrs. Micah, one of our ardent, straight supporters, asked me to share a piece of money advice that I think will help others. First, here is her tip: Open bills and pay them right away or use calendar software. Good advice. I handle my bill paying the exact same way. Also, I switched to online bill pay back in early 2006 (which I admit was joining the party late) but I’m a zealous convert. This service lets me automate the process and takes the manual aspect out of it.
So what money tip do I think is worth sharing? Mine is a bit more counterintuitive (as some readers have disputed my reasoning behind the practice) but it works for me and provides peace of mind in our overall financial strategy.
So what is it? I always keep a home equity line of credit (HELOC) at my disposal. My mortgage broker, who I adore, convinced me that this is a grand safety net. Of course, there are costs associated with setting up a HELOC and I’m certain she made a nice commission on this transaction, but in my opinion it is money well spent.
Here’s my thinking: what if I lost my job or Jeanine lost her job or one of us had a health crisis that prevented us from working? Or God forbid our yet-to-be-conceived child is born with special and expensive needs.
When a major emergency strikes it’s usually too late to develop the contingency plan. Sure there’s disability insurance and mortgage payment insurance but disability typically only covers a fraction of one’s income and the latter usually has a laundry list of loopholes like a time period before you get your first payment.
Most lenders will not let you pull out equity if you can’t show income this is why I want access to some of our equity before ever needing it. In a major emergency, after depleting our savings, the HELOC would buy us more time to weather the storm.
I confess that I have a lot of money issues… remember, I’m the amasser and financial hoarder and it’s hard for me to spend it. Money makes me feel safe. Period. Buying stuff has always been secondary. It’s never been about keeping up with what others are wearing, driving or doing. Money in the bank and our HELOC back up plan allows me to sleep in peace at night.
That said, at times Jeanine views our HELOC differently. We’ve been itching to remodel our kitchen (we haven’t yet!) and more than once, she has said, “Why don’t we use our line of credit?” After all isn’t that what millions of people did with their equity over the last few years – use it?! Those types of expenses should be paid for with cash, not financed. Besides our cash is going to making a baby these days. The kitchen will have to wait.
Another time (when we had our first big money fight), a family member asked Jeanine to dip into our line of credit for a loan. It was a double freak out moment for me. As that post explained, Jeanine ended up lending the money out of her personal savings, which still made me wig out, but I had to just let this go. Not all battles are worth winning.
Anyway, having a HELOC is good advice in my opinion. On two of my rental properties I have the same. My contingency plan is padded and in place. I hope I’ll never have to use it, but just knowing it’s there makes me feel better.
What do you think? Do you agree or disagree?