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3 Reasons to Have a HELOC Even If You Don’t Need It

By on March 9, 2014 in Mortgage

3 Reasons to Have a HELOC Even If You Don't Need ItPaying off a huge debt like the home mortgage on your principal residence is lifting a huge financial burden off of your shoulders. Not having a monthly payment can free you up to pursue the job you always wanted, to start the freelancing career you have been holding back, or can let you travel the way you always wanted to.

But paying off your mortgage and leaving the house without any mortgage or loan against it can be a poor financial move.

This thought, at first, should leave you scratching your head. I thought paying off your mortgage was the right thing to do!, you might think.

And that’s in the right ballpark. Paying off the mortgage and ending the payment of interest is wise. Going without a loan against the property can be unwise.

Why a Home Equity Line of Credit is a Smart Financial Move

Even if you have paid off your mortgage – congratulations! – having a home equity line of credit is a savvy financial move.

Here are three ways a HELOC can be a smart thing to have on hand even if you want to live a debt-free life.

HELOC Protects Your Home as a Financial Asset

If you are ever sued by another party, their legal team is going to dig in to see what your financial assets look like. When you pay off your mortgage that becomes part of public record. That is, the legal team will find it, discover you own a home worth hundreds of thousands of dollars, and encourage their client to sue you since you have the financial means to pay any amount due if you lost the lawsuit.

On the other hand, if the legal team researches and discovers there is a large HELOC on the property they may not pursue the claims. (Having a large credit line doesn’t mean you have to use it, but they won’t be able to tell that from the records.)

Use HELOC Cash to Make Cash Offers

A home equity line of credit can be tapped to get a deal on a property, vehicle, or other large purchase where paying cash can result in a significant discount. You use the HELOC funds to buy the asset, then pursue normal financing on your own after the transaction is completed. (The new loan pays back your HELOC, putting it back to a zero balance.)

Use HELOC as Emergency Fund of Last Resort

The only time you are able to qualify for a loan is when you have an income that can be used to pay back the debt. If you lose your job, you won’t be able to get any kind of loan while unemployed. While this is smart from the lender’s perspective it can leave you in a bind.

If you have a HELOC and know you are about to lose your job, you can tap the full amount and use the cash to slowly pay back the loan. This buys you more time to find new employment or pay for that unexpected emergency.

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