Paying Off HELOC Early


M

Michael Anderson

I obtained a HELOC as part of an 80-10-10 mortgage back in Dec of 2002. I
plan on paying this off no later than Dec 2006. It has a variable interest
rate, which is currently 10.00%. The account also carries a $50/year
maintenance fee. I have no other debt other than my mortgage. I have not,
nor do I have any intentions of using this HELOC for home improvements or
purchases.

1. Is there any reason to keep open an HELOC with a zero dollar balance?
2. Do HELOC's typically carry a penalty for paying off early?
3. If I close the account, will this affect my FICO either way?

Thanks,
-Mike
 
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J

John A. Weeks III

Michael Anderson said:
1. Is there any reason to keep open an HELOC with a zero dollar balance?
It could serve as an alternative to an emergency fund. Rather
than keeping a bunch of money in a money market fund for
emergencies, you use the H/E loan, then pay it off after the
emergency.

If you truely do have some emergency, you might not qualify for
a H/E loan when you really need it. For example, if you lose
your job. Having one ready to go in your back pocket is an
inexpensive insurance plan.

The negatives do exist. First, you keep the lien on your
house. Second, it could be a huge temptation to do something
very stupid with your money (ie, buy something that you cannot
afford to own).
2. Do HELOC's typically carry a penalty for paying off early?
If it is a H/E line of credit, they expect variable payment
plans. Paying early is almost never a problem. An H/E loan
normally has fixed payments, and there could potentially be a
penalty for early payoff.
3. If I close the account, will this affect my FICO either way?
There might be a short-term drop, but over the long term, it
shouldn't make that much difference. If you have behaved well
over time, the good track record will help your ability to get
future loans.

-john-
 
C

Chris Cowles

Michael Anderson said:
The account also carries a $50/year maintenance fee.
My HELOC with AmSouth also carries a $50 annual maintenance fee, but can be
avoided by spending at withdrawing (I think) $100 per year. I can buy a
weeks' groceries and pay it back immediately to meet that need, with nominal
interest expense. It should be easy to avoid. Check to see if your bank has
similar conditions.
 
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$

$cott

1. Is there any reason to keep open an HELOC with a zero dollar balance?
Financial options (liquidity and easy access to home-equity bound
value), perservance of FICO scores and "in case of" (as the other
poster has noted).
2. Do HELOC's typically carry a penalty for paying off early?
Addressed by a previous poster.
3. If I close the account, will this affect my FICO either way?
Closing any active account that reflects a long and positive credit
history does not favor your credit score initially. To close the
account is not advisable if the HELOC is one of only a "couple" of
credit references on your report. If the HELOC is one of "many"
positive credit references, then you can if you wish.Regards,

Scott Miller
Commercial and Residential Lender/Broker

www.RealEstate-IQ.com
www.EZMortgageLoanz.com
 

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