Stock Market/Investing/Fin Planning Catch-All

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OK zizzlers, explain this to me like I am a dum-dum because my eyes glaze over on financial stuff.

I have some credit card debt that I wanted to pay off so I called my bank (have had a previous personal loan through them when I was going through my divorce that is since paid off). The lady is now trying to talk me into doing a home equity line of credit instead.

So does mean they put however much money in an account that I can draw on for 10 years, while I pay the interest? And then at the end of the 10 years I have to pay back what's been used from the account plus interest? I feel like I am totally missing something.
 
HeelInTheOzarks said:
OK zizzlers, explain this to me like I am a dum-dum because my eyes glaze over on financial stuff.

I have some credit card debt that I wanted to pay off so I called my bank (have had a previous personal loan through them when I was going through my divorce that is since paid off). The lady is now trying to talk me into doing a home equity line of credit instead.

So does mean they put however much money in an account that I can draw on for 10 years, while I pay the interest? And then at the end of the 10 years I have to pay back what's been used from the account plus interest? I feel like I am totally missing something.
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They open a line of credit - there is typically a draw period of 10 years where you can take money against the line. You typically only need to make monthly interest payments during this draw period (although can pay principal). Then there is a repayment period (20 years for example) where you are paying principal and interest to pay back the outstanding balance amortized over 20 years.

Check the terms offered to you: interest rate - typically variable and some spread over prime rate, draw period, repayment period. You might also be able to deduct the interest on the HELOC if the funds are used to improve your home...but should consider where you are against the standard deduction and if the funds will be used that way. Also keep in mind, if you default on your credit card payments it just wrecks your credit, if you default on a HELOC it will wreck your credit and you could lose your home.
 
NCK9 said:
They open a line of credit - there is typically a draw period of 10 years where you can take money against the line. You typically only need to make monthly interest payments during this draw period (although can pay principal). Then there is a repayment period (20 years for example) where you are paying principal and interest to pay back the outstanding balance amortized over 20 years.

Check the terms offered to you: interest rate - typically variable and some spread over prime rate, draw period, repayment period. You might also be able to deduct the interest on the HELOC if the funds are used to improve your home...but should consider where you are against the standard deduction and if the funds will be used that way. Also keep in mind, if you default on your credit card payments it just wrecks your credit, if you default on a HELOC it will wreck your credit and you could lose your home.
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So let’s say someone took 50k into this account and only used 20k. Does that mean at the end of the draw period that the bank keeps the unused 30 and I would pay the 20 plus interest?
 
HeelInTheOzarks said:
So let’s say someone took 50k into this account and only used 20k. Does that mean at the end of the draw period that the bank keeps the unused 30 and I would pay the 20 plus interest?
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Yes, but you'll be accruing (and paying) interest on the 20k you took out throughout the draw period.
 
HeelInTheOzarks said:
So let’s say someone took 50k into this account and only used 20k. Does that mean at the end of the draw period that the bank keeps the unused 30 and I would pay the 20 plus interest?
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Typically, HELOC balances convert to fixed, fully amortizing debt at the end of the draw period. Your credit line (limit) is somewhat irrelevant at the end of the draw period because the line is can no longer be tapped- what matters is the balance. In most cases, you can borrow, paydown, borrow again, etc. as much as you want during the draw period - whatever remains outstanding at the end converts to perm debt.
 
Willy said:
Typically, HELOC balances convert to fixed, fully amortizing debt at the end of the draw period. Your credit line (limit) is somewhat irrelevant at the end of the draw period because the line is can no longer be tapped- what matters is the balance. In most cases, you can borrow, paydown, borrow again, etc. as much as you want during the draw period - whatever remains outstanding at the end converts to perm debt.
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Aren't most Helocs highly adjustable like daily or weekly or tied to the LIBOR or something? I'm so damn old I remember negative amortization. Look it up.
 
SmilingJack said:
Aren't most Helocs highly adjustable like daily or weekly or tied to the LIBOR or something? I'm so damn old I remember negative amortization. Look it up.
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Yeah from what I have been reading, the interest rates move all over the place, but you can get a fixed rate on what you withdraw (up to a certain amount of times).
 
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