Looking for opinions on the 2 alternatives I have now (background - my home equity line of credit HELOC 10-year draw period ends in November. I never used it; it was just a safety net, and I would like to continue having that safety net. Current HELOC rate is 3.25%)

1. Straightforward way - Get new HELOC from same lender (they will not just extend the draw period). They offer 0 closing costs but only 5 year draw period at higher rate, probably 5%. Again, I would plan never to use it, just a safety net. (Or I could look for a HELOC from a different lender that might offer better terms.)

Drawbacks: hassle of a closing; risk of lender reducing the credit limit during the draw period (even though they never did so during my past 10 years)

2. Maybe a bit odd, but - Use the present HELOC before it expires in November (e.g. take out $100,000 of the $2000,000 HELOC limit) and put that money in the bank (actually cash value fund of my life insurance which pays 4% tax-deferred) as my safety net, making regular payments on the HELOC debt over the next 20 year payment period.

Drawbacks: impact to my credit rating from having a $100,000 HELOC/2nd-mortgage debt, which might block me from getting a new HELOC if this option 2 turns out to be a bad idea

Opinions? Thanks.

On Thursday, July 25, 2013 8:24:50 AM UTC-4, wrote:
Looking for opinions on the 2 alternatives I have now (background - my home equity line of credit HELOC 10-year draw period ends in November. I never used it; it was just a safety net, and I would like to continue having that safety net. Current HELOC rate is 3.25%)



1. Straightforward way - Get new HELOC from same lender (they will not just extend the draw period). They offer 0 closing costs but only 5 year draw period at higher rate, probably 5%. Again, I would plan never to use it, just a safety net. (Or I could look for a HELOC from a different lender that might offer better terms.)



Drawbacks: hassle of a closing; risk of lender reducing the credit limit during the draw period (even though they never did so during my past 10 years)



2. Maybe a bit odd, but - Use the present HELOC before it expires in November (e.g. take out $100,000 of the $2000,000 HELOC limit) and put that money in the bank (actually cash value fund of my life insurance which pays 4% tax-deferred) as my safety net, making regular payments on the HELOC debt over the next 20 year payment period.



Drawbacks: impact to my credit rating from having a $100,000 HELOC/2nd-mortgage debt, which might block me from getting a new HELOC if this option 2 turns out to be a bad idea



Opinions? Thanks.

I would probably opt for the new HELOC. Also, if you shop around,
I'm sure you will find other lenders that don't have a 5 year limit
on when you can use it. I've had ones that had no such limit. But
then I don't think the rate was fixed, it could change and that is a
key difference.

With option two, you'd be investing the money from the mortgage
tax deferred, which might make the mortgage interest cost non-deductible,
don't know all the IRS rules on that one. I would not worry about drawing
the credit line preventing you from getting another HELOC to replace it
at some point in the future. You just tell the new lender that the
proceeds of the new loan are going to pay off the existing. They are
cool with that. It's what they like. You've been making regular payments,
they want to replace your existing lender. It's just done so that at
closing the existing is paid off.