Manage cash vs HELOC

We're doing some major home repairs and I had planned to tap into an equity credit line to pay for them. We planned this work several months ago, but now that it is coming close to the time to draw on the credit line, I'm having second thoughts.  Our YNAB budget is in great shape, with lots of cash sitting around padding all the emergency categories, age of cash over 100 days. 

Normally I'd prefer using (non-credit card) debt over cash since debt gives me more flexibility: I can pay the debt off quickly or slowly, but once that cash is spent, it's gone.  But with the HELOC, I'm thinking why would I want to start accruing interest on a loan today with all this cash on hand?  Since the cash is all budgeted in YNAB, it isn't really doing any work for me (like earning investment returns).  I could zero-out all those budget lines and pay for most/all of the repairs.  Then, I can draw on the HELOC if/when I need the cash for the purpose that it was originally budgeted.  Best case, those budget categories just get built back up over time; worst case everything goes wrong tomorrow and I just tap the HELOC as originally planned.


Anyone have any thoughts on how to manage a situation like this, both in life and in YNAB?

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  • HELOCs are subject to being "frozen", eliminating additional draws. The risk is you spend your cash and are stuck not being able to afford those other expenses. I don't know how likely this is, but enough people have said it's a thing in past discussions that it's worth considering.

    • dakinemaui Good point, in this case the draw period started at ten years with about 8 years remaining.

      • dakinemaui
      • dakinemaui
      • 3 mths ago
      • Reported - view

      Orange Camera Can that draw period be unilaterally altered (i.e., cancelled) by the bank?

    • dakinemaui The agreement outlines the circumstances under which they may terminate, suspend or reduce the credit line, I'll paraphrase:

      Termination (balance becomes due, and draw period ends) in case of:

      • I commit (or am found to have committed) fraud
      • I fail to make payments
      • I do something to adversely affect the collateral (e.g. fail to pay property taxes)
      • I die

      Suspension or reduction (unilateral, no notice or agreement required):

      • The value of the property declines "significantly below" the appraised value
      • Bank "reasonably believes" I will be unable to fulfill my payment obligations due to material change in financial circumstance
      • I'm in default
      • The Government prevents the bank from imposing the APR
      • The Government notifies the bank that continued advances constitute unsafe or unsound business practices
      • The maximum APR is reached

      The APR is WSJ prime minus 0.45%, so the likelihood of that exceeding 21% seems very low.  Realistically, it looks like a huge drop in property values or loss of income are the only two scenarios I'd need to worry about.


      The amount I'm talking about here is about 10% of the credit line, so even a substantial reduction wouldn't be a problem.  Obviously suspension of the draw period would be.

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