Bankers, brokers, and homeowners with HELOC or similar experience, please step inside

[OkieSnuffBox]

Originally Posted by Alfisti

Yeah $250 here, best I could find anyway and even then that's barely deep enough to re-sod.

I just had a birch removed last fall, it was already essentially dead, maybe 20 or so feet, not many branches at all, was $900 with stumping.

Things being noticeably cheaper here is one of the very FEW advantages of living in this hilljack-ridden state.

[Alfisti]

Originally Posted by OkieSnuffBox

Things being noticeably cheaper here is one of the very FEW advantages of living in this hilljack-ridden state.

I am a believer that everywhere has it's qualities. We set up an office in Wichita 6 years ago, I kinda liked going there. Very different to here in many ways (especially the gun laws jesus H!!) and it's in the middle of fucking nowhere USA but I could live there a year if i had to.

[OkieSnuffBox]

Originally Posted by BRAKE!

Hey that’s a great point. If you would consider the alternative - inflation has existed since the dawn of time (and will continue to exist) and the federal reserve exists for these reasons, I think it still provides a compelling reason to prioritize budgeting over going into debt for non-essentials. Alternatively, not paying interest is a risk-free, tax-free guaranteed return on your future earnings.

But I respect your view point, it is called “personal” finance after all

Yes, their goal is about 5x the rate it was before the Fed existed, which is an entirely different debate. But the average inflation since 1913 has been 3.25% even though the goal is 2%. 1790-1913 the average annual inflation was 0.4%.

But we are way past their goal at this point.

I don't buy into the Dave Ramsey "all debt, is bad debt" argument. It probably is for most people who can't control their spending, but if you're smart with it, you can make it work for you.

[OkieSnuffBox]

Originally Posted by Alfisti

I am a believer that everywhere has it's qualities. We set up an office in Wichita 6 years ago, I kinda liked going there. Very different to here in many ways (especially the gun laws jesus H!!) and it's in the middle of fucking nowhere USA but I could live there a year if i had to.

We were looking to get out of Oklahoma just before COVID started, but with housing blowing up, it's a non-starter unless I change jobs.

Our company is happy to let us be remote (which those of based in OKC are now that they closed the office last year) from anywhere in the country. But if I move somewhere more expensive, they aren't going to just up my salary to match the COL.

[Alfisti]

OKC is a pretty decent sized city no? It's bigger than Wichita.

[OkieSnuffBox]

Originally Posted by Alfisti

OKC is a pretty decent sized city no? It's bigger than Wichita.

OKC proper is around ~650k, add in the metro area and it's around 1.5 million.

So not big, not small.

[Alfisti]

OK yeah 3 times the size of Wichita. Now I want a huge BBQ meal for like $20 god dammit.

[OkieSnuffBox]

Originally Posted by Alfisti

OK yeah 3 times the size of Wichita. Now I want a huge BBQ meal for like $20 god dammit.

Haha! Now that makes me want BBQ!

The Finace's parents are coming up next week to visit, so we will be going out to enough then.

[Bongoxxx]

Originally Posted by BRAKE!

I would always advise against using your home as collateral for more loans outside of your primary mortgage. The more you borrow, the more expensive your payments become. How much longer do you want to keep overpaying (in interest) for the things you want/but not need? Plus, there is always risk involved with not being able to pay back your loans; life happens, medical expenses can pile up, one can lose a job etc. it’s at those moments where the last thing you need is someone’s hand in the sanctity of your home.

“This isn’t a matter of stretching finances for something we can’t afford” - by definition, if you have to borrow money to get it done, you’re stretching your finances.

Ask yourself, why can’t this wait 18 months when you actually have the money to do this (in your budget) and you don’t have to pay a cent in interest?

Okay, ask yourself, do I pull money from my investment portfolio which for me was just over 48% return in 2021 or do I use my HELOC and pay 1.85%?

So use my ‘cash’ by selling some of my portfolio and lose 48% return? Or dip into my $1mm HELOC pay 1.85% and net 46% return by staying invested?

Heck I can sell most of my portfolio and go conservative with preferred stocks and make 5-7% in dividends and still be ahead by using my HELOC.

[chassis]

The financial logic is sound and holds water.

If your cash horde+income supports your needs including debt service, borrowing at a low interest rate to avoid pulling money out of the market is a sound approach. Having said that, what the SP500 will return this year is a bit foggy at the moment.

[3 Stripes]

I did a cash out refinance recently. Figured that I might as well with the low rates and equity going through the roof. I borrowed 50k to do home renovations. Let’s just say that I underestimated everything and should have borrowed another 15k. All in all it was pretty easy. I should be able to get a good 150k more in equity with the 50k I invested in to the house. I might even consider selling after the renovations.

[BRAKE!]

Originally Posted by Bongoxxx

Okay, ask yourself, do I pull money from my investment portfolio which for me was just over 48% return in 2021 or do I use my HELOC and pay 1.85%?

So use my ‘cash’ by selling some of my portfolio and lose 48% return? Or dip into my $1mm HELOC pay 1.85% and net 46% return by staying invested?

Heck I can sell most of my portfolio and go conservative with preferred stocks and make 5-7% in dividends and still be ahead by using my HELOC.

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

The premise of my initial response is that budgeting your post-tax, realized income to accommodate for life's expenses is a tax-efficient, interest-free way to obtain what you want vs borrowing money - where it involves paying back the lender in the form of principle + interest + fees (+ taxes on your future income to cover the payments). Not to mention, risking the sanctity of your home by making it a collateral against your loans (via a HELOC, home equity loan) in case you run into a situation where you cannot pay them back.

If you take budgeting into account (i.e. have a savings account for life's expenses), then your situation is a non-issue. You would not have to dig into a retirement account or a post-tax investment account to cover these expenses. You wouldn't have to put yourself in a lose-lose position where you're either losing money by getting out of the market or ultimately paying more for items that go down in value or that you can't resell (like a service). You can have it all (interest free discount on the things you want and get to keep 100% of your, albeit, 'un'realized gains in your portfolio).

As a side, the (theoretical) mathematical argument that your money is better spent in the market, "safe" investment, etc. while using someone else's money to fund your hobby/desires is incomplete at best and misleading at worst. It forgets to take into consideration beta (risk) into the equation. We all live in the real world, not the theoretical one. Assuming one is investing their money into the market, there is no guarantee of return and the only "safe" bet is on the one we can make about long term gains on well-diversified portfolio (years in the market). The stock market is quite volatile when looking at a short term perspective, even when you look at "safe" investments like index-based, passive, no-load, low-turnover mutual funds. Meaning you may end up in scenario where you lose a lot of your own money in the market in the duration of your loan period (where you're also losing money). Recently, this volatility has been the center piece for equity and bond markets based on the speculation of what the Fed will do to curb inflation.

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.

[2000cs]

Originally Posted by chassis

The financial logic is sound and holds water.

If your cash horde+income supports your needs including debt service, borrowing at a low interest rate to avoid pulling money out of the market is a sound approach. Having said that, what the SP500 will return this year is a bit foggy at the moment.

I agree.

You perhaps inadvertently pointed out one of the key issues: volatility. The debt is not volatile (its interest rate and payment may be variable, but will generally change slowly). The investments made with funds that could repay the debt are volatile, as January showed. So in addition to a long-term positive earnings spread, I’d want to be sure I can withstand the volatility and potential to be negative for a long time (bear market conditions) and still come out ahead over the duration of the loan. And have the stomach for it.

[dogbone]

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.