Would you have done this?

[sdrealtor]

BTW, I do believe in having a big old HELOC open for liquidity purposes just in case. You never know what might happen in life or what might come your way and it’s a nice luxury to know you or your family could write a 6 figure check if you had to.

[an]

Thanks for the # sdcellar. I have a couple more questions. I was wondering how the number would look like if the fed raise another .25%, which would make savings rate go up to ~5.5%? Also, what I’ve seen with my pre-qualified rate I got and what bob2007 got was around 6.2%. Would that make it break even? My second question is, would $3926/yr be worth it for the safety of liquid cash just in case something happen? Such as a major accident or a job loss? If price keep going down like we all expect and that will eventually erode the 400k to a smaller amount or to nothing, which means you can’t HELOC or refinance again. To me, $3900/yr is definitely worth it to hedge my bet of a declining RE price and increasing interest/saving rate.

[an]

Thanks for the # sdcellar. I have a couple more questions. I was wondering how the number would look like if the fed raise another .25%, which would make savings rate go up to ~5.5%? Also, what I’ve seen with my pre-qualified rate I got and what bob2007 got was around 6.2%. Would that make it break even? My second question is, would $3926/yr be worth it for the safety of liquid cash just in case something happen? Such as a major accident or a job loss? If price keep going down like we all expect and that will eventually erode the 400k to a smaller amount or to nothing, which means you can’t HELOC or refinance again. To me, $3900/yr is definitely worth it to hedge my bet of a declining RE price and increasing interest/saving rate.

[NotCranky]

AN
You could hedge your bet or you could go bankrupt. The heloc or mortgage money in cd’s would be for very good equity positions and possesion other assets and at the very least non-employment income to cover. As soon as you use it to survive its a slippery slope so its better to avoid that mentality.

[NotCranky]

AN
You could hedge your bet or you could go bankrupt. The heloc or mortgage money in cd’s would be for very good equity positions and possesion other assets and at the very least non-employment income to cover. As soon as you use it to survive its a slippery slope so its better to avoid that mentality.

[an]

Rustico, based on sdcellar’s #, you’ll be losing 3900/year. That would take many years for you to go bankrupt. It would take 102 years to erode your $400k principal IF the savings rate doesn’t change. So I don’t really get your point. At this point with the flatten yield curve, I don’t see the big advantage in CD since money market and online savings yield about the same with no penalty.

The heloc or mortgage money in cd’s would be for very good equity positions and possesion other assets and at the very least non-employment income to cover.

Isn’t this what I’m trying to say? I’m confused.

One other question about HELOC. If let say you have 400k equity in your house so you open a 400k HELOC and the property dropped by 400k, can you still withdraw from that HELOC?

[an]

Rustico, based on sdcellar’s #, you’ll be losing 3900/year. That would take many years for you to go bankrupt. It would take 102 years to erode your $400k principal IF the savings rate doesn’t change. So I don’t really get your point. At this point with the flatten yield curve, I don’t see the big advantage in CD since money market and online savings yield about the same with no penalty.

The heloc or mortgage money in cd’s would be for very good equity positions and possesion other assets and at the very least non-employment income to cover.

Isn’t this what I’m trying to say? I’m confused.

One other question about HELOC. If let say you have 400k equity in your house so you open a 400k HELOC and the property dropped by 400k, can you still withdraw from that HELOC?

[sdcellar]

AN– First, I must admit an error and note that the annual cost with the last example was $2,611.81. Sorry, had referenced the wrong cell on one of the calcs. Now, onto your latest plea to support your case…

If savings rates go up, so will loan rates. I understand that following loan inception, the loan rate stays what it is and what happens with the savings rate happens, but all we can start with is what the rates are today and I think you’re really pushing it. Please tell me where you can get a plain old savings account at 5.5% and a jumbo loan at 6.2% (really!)

Even so, I’ll entertain your new criteria. The cost would now be $1,325.46 annually, 110.45 monthly. If you keep making up rates you can’t get, we should be able to get it to break even…

And no, it’s not worth it to me at even $200 bucks a month to keep $400K liquid. As I mentioned before, I’d certainly keep an emergency fund and sdrealtor’s suggestion about a line of credit isn’t a bad one if I was really worried I might need to come up with a few hundred kilobucks suddenly.

If it’s equity erosion you’re worried about, whatever happens with that, happens with that. If your house loses $200K (or more), you will be out that money if you need to sell–doesn’t matter if it’s in equity or the bank. The *only* thing that would make that different is a willingness to walk away from a house if you were sufficiently underwater. I’m hoping that’s not your rationale.

[sdcellar]

AN– First, I must admit an error and note that the annual cost with the last example was $2,611.81. Sorry, had referenced the wrong cell on one of the calcs. Now, onto your latest plea to support your case…

If savings rates go up, so will loan rates. I understand that following loan inception, the loan rate stays what it is and what happens with the savings rate happens, but all we can start with is what the rates are today and I think you’re really pushing it. Please tell me where you can get a plain old savings account at 5.5% and a jumbo loan at 6.2% (really!)

Even so, I’ll entertain your new criteria. The cost would now be $1,325.46 annually, 110.45 monthly. If you keep making up rates you can’t get, we should be able to get it to break even…

And no, it’s not worth it to me at even $200 bucks a month to keep $400K liquid. As I mentioned before, I’d certainly keep an emergency fund and sdrealtor’s suggestion about a line of credit isn’t a bad one if I was really worried I might need to come up with a few hundred kilobucks suddenly.

If it’s equity erosion you’re worried about, whatever happens with that, happens with that. If your house loses $200K (or more), you will be out that money if you need to sell–doesn’t matter if it’s in equity or the bank. The *only* thing that would make that different is a willingness to walk away from a house if you were sufficiently underwater. I’m hoping that’s not your rationale.

[NotCranky]

My second question is, would $3926/yr be worth it for the safety of liquid cash just in case something happen? Such as a major accident or a job loss?

I am not going to debate cd’s vs money market that’s not the point.
If the stuff hits the fan accident loss of job illness,which is what you say your “hedge” strategy is for you still owe the $400K and have to pay on it plus the remaninder of the balance so its a slippery slope. Since you are using it as a hedge against bad luck at a time when you are way upside down or over leveraged in theory wouldn’t you go through it in a lot less than 102 years and what do you do with that big fat mortgage when your “hedge” is gone? I hope I am not misunderstanding you completely?
One other question about HELOC.

If let say you have 400k equity in your house so you open a 400k HELOC and the property dropped by 400k, can you still withdraw from that HELOC?

I hope this is not about another “hedge” strategy :).

Helocs are generally for much less money there might even be a cap at 100k. I said the equity position should be very good I am not suggesting someone should ever heloc out the last dime.The bank will probably pull the loan back though and there are stipulations that you have to report loss of job and such I believe,if its true probably no one does.. I am really not the expert helocs and I have wondered some of those same things just never pushed myself to find out.

I better get some work done or else I am going to be in need of a heloc:). I will check back later. Hopefully someone will answer your questions and fill in any mistakes I am making.

[NotCranky]

My second question is, would $3926/yr be worth it for the safety of liquid cash just in case something happen? Such as a major accident or a job loss?

I am not going to debate cd’s vs money market that’s not the point.
If the stuff hits the fan accident loss of job illness,which is what you say your “hedge” strategy is for you still owe the $400K and have to pay on it plus the remaninder of the balance so its a slippery slope. Since you are using it as a hedge against bad luck at a time when you are way upside down or over leveraged in theory wouldn’t you go through it in a lot less than 102 years and what do you do with that big fat mortgage when your “hedge” is gone? I hope I am not misunderstanding you completely?
One other question about HELOC.

If let say you have 400k equity in your house so you open a 400k HELOC and the property dropped by 400k, can you still withdraw from that HELOC?

I hope this is not about another “hedge” strategy :).

Helocs are generally for much less money there might even be a cap at 100k. I said the equity position should be very good I am not suggesting someone should ever heloc out the last dime.The bank will probably pull the loan back though and there are stipulations that you have to report loss of job and such I believe,if its true probably no one does.. I am really not the expert helocs and I have wondered some of those same things just never pushed myself to find out.

I better get some work done or else I am going to be in need of a heloc:). I will check back later. Hopefully someone will answer your questions and fill in any mistakes I am making.

[an]

sdcellar, please go here for the rates I’m referring to. Right now, Countrywide Bank Savings will give you 5.40% APY if your balance is between $50,000 – $2,499,999. I’m currently gettin 5.3% in my GMAC account. There are also many others offering between 5.3 and 5.4%. Also, I’m referring to getting a 30 year fixed rate so your mortgage rate wouldn’t change. Regarding the 6.2%, please ask bob2007, he got it. When I got pre-qualified a few weeks ago, i was quoted around the same # as well. So no, I’m not making up stuff.

I’m also assuming he/I stay in the house for at least 30 years. So no selling here. Also, do you think interest/savings rate will stay this low for the next 30 years? Since you get a 30 year fixed, your mortgage rate would stay the same. Over 30 year period, at what savings rate will you be breaking even? I would assume it’d be 5.75%. What’s the chance of interest rate get above 5.75% over the next 30 years? What I’m trying to calculate is over 30 years w/ this 400k, can I make my money work harder for me in a no risk way.

Sorry Rustico, the accident/lost of jobs is a bad example/reason. I might have worded my reasons/ideas badly but I’m just trying to think outside the box and try to get my money work the hardest for me. I was trying to head toward the point that cash is better than equity to me. If I understand your answer regarding HELOC, if you don’t have equity left, you can’t withdraw from the HELOC. So, if you still have that 400k in cash and you lost 400k in equity, and you have an accident/lost of job that prevent you from working for 1 year. The cash will help you sustain w/out having to worry as much. Another reason for having cash in my mind is if some GREAT opportunity comes along but you need the cash to take advantage of it and you have no equity left to withdraw(HELOC), wouldn’t cash give you that opportunity? All of this is assuming I can pay both mortgage scenario comfortably of course.

[an]

sdcellar, please go here for the rates I’m referring to. Right now, Countrywide Bank Savings will give you 5.40% APY if your balance is between $50,000 – $2,499,999. I’m currently gettin 5.3% in my GMAC account. There are also many others offering between 5.3 and 5.4%. Also, I’m referring to getting a 30 year fixed rate so your mortgage rate wouldn’t change. Regarding the 6.2%, please ask bob2007, he got it. When I got pre-qualified a few weeks ago, i was quoted around the same # as well. So no, I’m not making up stuff.

I’m also assuming he/I stay in the house for at least 30 years. So no selling here. Also, do you think interest/savings rate will stay this low for the next 30 years? Since you get a 30 year fixed, your mortgage rate would stay the same. Over 30 year period, at what savings rate will you be breaking even? I would assume it’d be 5.75%. What’s the chance of interest rate get above 5.75% over the next 30 years? What I’m trying to calculate is over 30 years w/ this 400k, can I make my money work harder for me in a no risk way.

Sorry Rustico, the accident/lost of jobs is a bad example/reason. I might have worded my reasons/ideas badly but I’m just trying to think outside the box and try to get my money work the hardest for me. I was trying to head toward the point that cash is better than equity to me. If I understand your answer regarding HELOC, if you don’t have equity left, you can’t withdraw from the HELOC. So, if you still have that 400k in cash and you lost 400k in equity, and you have an accident/lost of job that prevent you from working for 1 year. The cash will help you sustain w/out having to worry as much. Another reason for having cash in my mind is if some GREAT opportunity comes along but you need the cash to take advantage of it and you have no equity left to withdraw(HELOC), wouldn’t cash give you that opportunity? All of this is assuming I can pay both mortgage scenario comfortably of course.

[sdcellar]

AN– Whew, you’re tiring me out. First, I understand perfectly what you’ve been saying. For example, I’m working with 30-year fixed assumptions, so no need to tell me that the loan rate won’t change (especially since I already made that point). You seem to missing concepts like loans above $417,000 carry higher interest rates. For me a good guideline on current non-Jumbo rates can be found here.

Now, if you expect me to speculate what savings rates will be over the next 30 years, I’m just not going to do it. Sure it seems like they’ll go up tomorrow and for some number of days after that. Do we know what it will be a year from now? Two? Five? You’re speculating, plain and simple. And frankly, that’s your choice.

I knew it was only a matter of time before you mentioned having the cash available for a GREAT opportunity. Perhaps you’re thinking internet stocks or Krispy Creme franchises or something. The funny thing is that you think your approach is conservative.

[sdcellar]

AN– Whew, you’re tiring me out. First, I understand perfectly what you’ve been saying. For example, I’m working with 30-year fixed assumptions, so no need to tell me that the loan rate won’t change (especially since I already made that point). You seem to missing concepts like loans above $417,000 carry higher interest rates. For me a good guideline on current non-Jumbo rates can be found here.

Now, if you expect me to speculate what savings rates will be over the next 30 years, I’m just not going to do it. Sure it seems like they’ll go up tomorrow and for some number of days after that. Do we know what it will be a year from now? Two? Five? You’re speculating, plain and simple. And frankly, that’s your choice.

I knew it was only a matter of time before you mentioned having the cash available for a GREAT opportunity. Perhaps you’re thinking internet stocks or Krispy Creme franchises or something. The funny thing is that you think your approach is conservative.

[Author]

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