When I was in law school, I clerked for a firm that specialized in commercial litigation.
And – the first thing the attorneys did when considering litigation was to ensure the defendant had sufficient assets to go after – should they win a judgment.
And a primary asset they looked at was the defendant’s home; if there was too little equity (along with too few other assets), the attorneys would sometimes discourage litigation altogether. This is because successful litigation can be fruitless if the defendant has insufficient assets.
So – this is just one reason to get a home equity line of credit (HELOC); the extra encumbrance/lien can discourage litigation.
DISCLAIMER: We don’t even offer stand-alone equity lines, as we refer them all out; so JVM stands to make no money from this friendly advice.
Here Are 5 Reasons To Get A HELOC – Now!
- Access cash – without refinancing out of low-rate 1st mortgage. If a borrower needs cash but her first mortgage is at 2.75%, it would not be prudent to do a cash-out refi – into a much higher rate – unless the first mortgage is small and the amount of cash needed is very large.
- Encumber property to fend off lawyers. See my story at the top of this blog.
- Banks often tighten HELOC guidelines during recessions. HELOCs are sometimes much harder to obtain during recessions, when borrowers need them the most, as nervous banks will often tighten HELOC guidelines when recessions hit.
- Easier to get when home values are high. HELOC “combined loan to value” (CLTV) ratios are capped at 80% in Texas and they go to 85% to 95% (depending on the bank) in CA. Because of these CLTV limits, HELOCs are also much easier to get when home values are high – for obvious reasons. I don’t expect value to fall, but if they do, borrowers would be wise to have their HELOC locked in now.
- Liquidity, Baby! This is the biggest reason because HELOCs are usually “no cost” up front with relatively small annual fees. HELOCs are wonderful sources of liquidity in the event of a pay-cut, a job loss, a medical emergency, home improvement needs, tuition bills and much else. They are also great resources for even wealthy borrowers who might not want to sell assets to raise cash – to avoid income tax issues or selling at the bottom of a market cycle.
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