Opinions on a HELOC?

[ProcessBlue2]

We are looking at getting a HELOC to do some upgrading and finish some projects around our home, I've never used one before. We are looking to sell here in the next 3-6 months and the realtor seems to think it would really help the value- especially the wrapping up of our slow moving projects (patio, outdoor living space, storage building, etc.). We have the cash to do all of this but we aren't really wanting to drop all of that at once due to some other things we have going on. I know the interest rates are high, but for just a few months I think it would be worth it. Have any of you done this before?

[HaricotVert]

Use a Credit Union.  Last one we got the CU had the best rates around by a full point.

[Anybodyhome]

It might be beneficial if you were thinking about holding the property for a while longer. You need to speak with the bank about your HELOC terms and conditions. Some banks will charge you a prepayment fee for early payoff, for example. Other banks may require you to pay off the HELOC prior to closing on the sale, while others may allow you to pay off the HELOC balance with the proceeds of the sale.

I would have this discussion with your banker, not your real estate agent.

[Anybodyhome]

And, I forgot to add this- your real estate agent wants the projects done because there's a higher commission at stake. Your banker wants you to have the HELOC because it's making the bank money.

I'm fairly certain the interest on a HELOC is still a tax deduction, only if used to improve the property. People used to carry a HELOC as a form of ready cash, when all interest was a deduction. Thanks to Trump and his Tax Cuts & Jobs Act of 2017, in order to pay for the tax cuts for the wealthy, the allowances for tax deductions on mortgage interest and HELOC interest was changed significantly, effecting mostly middle-class home owners.

We carried a HELOC for several years, used it basically to keep it active. We refinanced our mortgage some years back and had to pay off the HELOC prior to closing the re-fi. Since then, it's not been used and we finally closed to account just a couple months ago.

Remember, the HELOC is using your home as collateral, therefore the lending institution becomes a lienholder on your property. A deed is filed with the county Register of Deeds and the bank becomes part owner of you property as long as that account remains open, balance or no balance.

Personally, with rates being what they are, I'd be inclined to search out a project card, bank card or other line of credit that would give you 90 days or 6 months interest free. You'd be avoiding high interest rates and the only reason you'd need to pull from your cash reserve would be to pay off whatever balance there may be when the 90 days or 6 months come up and an interest hit is imminent.

I replaced my HVAC system in 2019 to the tune of $9k. I wasn't prepared for it and, although I had the cash, the HVAC company offered 6 months no-interest with their Wells Fargo financing.  I think I gave them 50% up front, financed the remainder and paid it off at the 6-month mark.

Edited December 26, 2024 by Anybodyhome

[Khyber53]

On 12/26/2024 at 9:47 AM, Anybodyhome said:

 

I would have this discussion with your banker, not your real estate agent.

Best advice here. And with your lawyer. Your real estate agent can be a fountain of information, but you must always understand that their intentions are to close a sale more than anything else. A banker has to protect the interests of their bank and if they balk there is a good reason, or if they demand payment before closing or a massive interest rate with early payback then they are assessing this as a risk. 

An attorney, one experienced in real estate, will watch out for you. It's worth a couple of hundred bucks to have one through this.

And cash beats credit.

[LinvilleGorge]

The realtor sees more commission. Unless you're doing the work yourself you will almost certainly not recoup your costs.

[HaricotVert]

If you are planning to buy your new home first and then sell your current home ultimately its the lender you have to be most concerned with. They are the ones who will be looking at your debt to income ratio and will decide how much you can get towards your new home.

They likely wont care that the HELOC will be paid out at the time you close your current home and will treat it as if that debt will persist