Real Estate

HELOC caveats for newbie?

  • Last Updated:
  • Jan 2nd, 2023 6:43 pm
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[OP]
Newbie
Nov 30, 2021
35 posts
41 upvotes

HELOC caveats for newbie?

Is there any reason not to use a FI like Laurentian Bank? Their rate is 6.7% compared to most others at 6.95%. Are there any FIs with bad HELOC reputations?

Any way to get the set up fee waived? Do they have to do an on-site appraisal?

What does pre-approval mean? Seems like some places offer it and some don't.

Mortgage renewal coming up next month and I'm looking to pay it off then get 1st position HELOC as a financial cushion. Does pre-approval mean that I could get qualified now and then get HELOC after paying off mortgage? I'm hoping this is the case as I'm likely losing my job soon and want to get approved while the optics are good.

I've read up some on HELOCS but any tips for a newbie to be wary of? TIA!
4 replies
Deal Fanatic
Jan 15, 2017
5307 posts
5418 upvotes
Ottawa
Most lenders will typically not waive HELOC set up fees unless you commit to using a certain amount of it immediately. As a HELOC is a credit line there is no guarantee that the lender will ever make money on it as you may never use it.

Appraisals are almost always needed, and in this lending environment I would expect it. Whether a full appraisal will be needed will depend on the estimated value of your home or whether the lender has a specific policy in place necessitating it. Sometimes if a lender is satisfied with an automated appraisal it will not order a full appraisal. There's no blanket statement on this as so many things can warrant the type of appraisal needed.

Is your current mortgage with Laurentian? Some lenders may not allow a HELOC behind their first mortgage so you may have to pay off the mortgage to secure the HELOC. IF you get a pre-approval now you can certainly time the closing of the HELOC some time in the future.

Some tips on HELOCs:

- A mortgage-free home is limited to a HELOC at 65% of the value,
- HELOCs typically carry a variable interest rate,
- HELOCs typically are interest only payments,
- HELOCs can be called at any time with short notice,
- HELOCs can be closed at any time with short notice,
- HELOCs are a credit line secured against your home so you default on a HELOC and you lose the home,
- HELOCs are very similar to mortgages but typically carry a higher interest rate so are often just a more expensive mortgage,
- HELOCs need to be disclosed to your house insurer and carry the same risk as a mortgage on the home.
Deal Addict
Nov 13, 2013
4020 posts
2508 upvotes
Ottawa
christmastime wrote: Is there any reason not to use a FI like Laurentian Bank? Their rate is 6.7% compared to most others at 6.95%. Are there any FIs with bad HELOC reputations?

Any way to get the set up fee waived? Do they have to do an on-site appraisal?

What does pre-approval mean? Seems like some places offer it and some don't.

Mortgage renewal coming up next month and I'm looking to pay it off then get 1st position HELOC as a financial cushion. Does pre-approval mean that I could get qualified now and then get HELOC after paying off mortgage? I'm hoping this is the case as I'm likely losing my job soon and want to get approved while the optics are good.

I've read up some on HELOCS but any tips for a newbie to be wary of? TIA!
In theory who cares who is lending you money and for a mortgage certainly I wouldn't care. For a HELOC as Skeet says they can be called or closed. Now a small regional bank like Laurentian might be a bigger risk but I don't know if that is true. It's probably unknowable. Depending on what causes the crisis the larger banks with investment banks and foreign assets could theoretically be more vulnerable.

Given you are losing your job soon your plan makes sense I suppose and with interest rates where they are I see your preference for paying it off now. With a paid off house do you really anticipate needing the HELOC funds? It seems unlikely you can't find some kind of employment to pay your remaining bills unless your kid is about to start University or some other expense.
[OP]
Newbie
Nov 30, 2021
35 posts
41 upvotes
Thank you @skeet50 & @fogetmylogin - your detailed replies are much appreciated and both gave me new and different things that I had yet to consider.

Didn't know it had to be disclosed to the insurer so will make a note to do that.

Also possible call and close is a thing?? :yikes!:

Maybe a regional bank is even better - like you say unknowable so will view them without bias.

My rationale for the HELOC is to leave it untapped and have it as a backup in case smth dire/unforeseeable happens. I have enough savings to keep me going for awhile and cover my usual bills but want a safety net available, like if my 16yr old car refuses to be coaxed along any further before I have funds saved up or can't get a reasonable financing. I anticipate finding alternate employment but the R word has been making its rounds so... Guess I'm hedging my bets: spend a few hundred $$ for set up & appraisal to get peace of mind if things go sideways - and seemed like 2022 only went sideways for me...LOL! And I didn't want to bog my post down with all this other stuff but I will likely need to provide significant elder care this year, if I am needed, this will be my priority over finding another job, and if multiple things go south at the same time, having access to relatively low cost funds would save some sleepless nights. Funds not earmarked - it's a defensive move.
Deal Fanatic
Jan 15, 2017
5307 posts
5418 upvotes
Ottawa
The risk of a HELOC being called or closed is very low. You should know though that it can happen and should it happen there isn't anything that you can do about it as you will agree to it in your agreement.

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