This is terrible advice, and it seems you never went through a massive crash.
Imagine, market crashes 50%, you lose your job, and what? Are you going max out your cards with 20%+ APR? Are you going to realize your losses?
Emergency fund is there to help ride out bad times, so you don't have to take shitty jobs, realize losses in your investments, sell your home or not undergo medical treatment due to financial stress.
Maximizing your savings/investments isn't a bad approach when your young as every $ made ads cumulative value over time. I wouldn't recommend it when you have a family.
What happens when the crash occurs and your bank nixes your line of credit? They are well within their right to, at least it says so in the fine print.
Then you’re broke, and left holding a very baggy looking portfolio.
Yes, people seem to forget that HELOCs are usually callable too.
If you have a $500k HELOC and have used $200k of it for something, the bank usually has the right to force you to start making principal repayments (not just interest), to change the interest rate, and/or even in extreme circumstances to “call” the loan and ask you to repay everything ASAP. Read your fine print.
Similar boat. I wanted a line of credit just to have it. With considerable equity in the house and savings and stock that exceeded the credit amount and with a high paying job and with excellent credit, the bank rejected my application. Apparently because I said I might use it for repairs at some point. Ffs.
I'm doing what the parent comment suggested. The line of credit should be margin - you borrow against your stocks. If you use Fidelity, you can call them and ask them to lower your interest rate, and it can actually get really low.
Home equity line of credit (HELOCs) are pretty easy to get, assuming you have some equity built up in a home. Works like a credit card. The rising interest rates will make using it pretty painful though.
In general, you pay enormous interest on unsecured credit.
House? Mortgages have single-digit interest.
Car financing? More complicated, but often free, or even negative (I bought my car for less with financing that it would cost me outright).
Credit card? Tens of %.
I guess a "line of credit" is essentially the same as a credit card. A bank can in principle recover your credit card debt off your house, but it's difficult.
avgDev|4 years ago
Imagine, market crashes 50%, you lose your job, and what? Are you going max out your cards with 20%+ APR? Are you going to realize your losses?
Emergency fund is there to help ride out bad times, so you don't have to take shitty jobs, realize losses in your investments, sell your home or not undergo medical treatment due to financial stress.
mythz|4 years ago
No, that's what the line of credit is for.
Maximizing your savings/investments isn't a bad approach when your young as every $ made ads cumulative value over time. I wouldn't recommend it when you have a family.
gunfighthacksaw|4 years ago
Then you’re broke, and left holding a very baggy looking portfolio.
Asparagirl|4 years ago
If you have a $500k HELOC and have used $200k of it for something, the bank usually has the right to force you to start making principal repayments (not just interest), to change the interest rate, and/or even in extreme circumstances to “call” the loan and ask you to repay everything ASAP. Read your fine print.
matanshavit|4 years ago
sethammons|4 years ago
landa|4 years ago
candiddevmike|4 years ago
rich_sasha|4 years ago
House? Mortgages have single-digit interest.
Car financing? More complicated, but often free, or even negative (I bought my car for less with financing that it would cost me outright).
Credit card? Tens of %.
I guess a "line of credit" is essentially the same as a credit card. A bank can in principle recover your credit card debt off your house, but it's difficult.