Quote:
Originally Posted by BRAKE!
Hey Bongoxxx, I want to preface my response by re-emphasizing the "personal" in personal finance. Meaning, as long as you can justify what you're doing in your head, it's all good 
I realized that my position may not be a conventional one, but I do think it takes into account real variables and real expenses. I hope that my point comes across educational as not argumentative. |
I don't know......waiting three years to do a remodel and "saving up" to do it......most people will never get there. The slow trickle of saved money will go elsewhere---not a better place, just elsewhere. With a HELOC, you could do the remodel today and enjoy it for 3 additional years and if you're responsible about paying it off over the next 3 years---the price for that "luxury" is a couple thousand dollars in interest at most. That's the "price" of being able to enjoy it for several extra years (which can be significant if you have kids that won't be around much longer, or aging parents, etc).
Let's look at a specific example----if I did a $50,000 remodel to my house and used my HELOC, my rate would be 2.25%. If I took three years to pay it back, I would pay a TOTAL of $1753 in interest. That's $48.69/month in interest over the three years. It's worth it in my book.....maybe not yours.
Stuff always happens in life---people lose jobs, markets crash, unexpected expenses pop up out of nowhere. It's good to live within a certain means, it's good to have savings if you can afford to set stuff aside, AND, in my book, it's good to have extra cushions in place (like HELOCs) if things really go south.
Let's consider another example----I lived in Los Angeles for 20 years. They have earthquakes. When? Who knows. And having earthquake insurance usually doesn't cover you 100%. You may have a 10-20% deductible to pay to rebuild the house. These days, even a normal house in LA costs $1,000,000 to rebuild. If you have a 15% deductible to rebuild, you're looking at $150,000 to get that construction project started. And you want to get it going quickly before the good contractors get tied up. How many people have that just lying around to plop on a sudden construction project? Not to mention, you'll have to start paying rent somewhere while the house is being rebuilt along with who knows how many other unforeseen expenses. A HELOC can get you going INSTANTLY, instead of going to the bank for help (good luck), or waiting for the government to implement a disaster aid program which is probably a low interest loan anyway. So you go through some long winded government aid thing, finally have money in hand and then no reputable contractor is available, so you either have to wait a long time, which is another disaster, or you have to turn to all the shady people that come from across the country to make a quick buck off your misfortune.....all because you didn't have quick access to money.
It's an unfortunate irony that when bad things happen, that's when you most need money, and that's when it's hardest to get. No one wants to lend you money when you're desperate. Or worse, they take advantage of you.....And all of this is avoidable if you secure your own access to money based on the equity of your home---which as I said before is at a rate virtually untouchable by any other form of lending.