Xoutpost.com - Paying balance with HELOC?

Quote:

Originally Posted by clubba

I see that you are an accountant and I apologize for the rash generalizing comment.
And points taken, but I respectfully disagree with some of them.
Most people in sound financial condition with any sort of financial acumen would never even consider wrapping their car into a HELOC. That said, there is no way we should be looking at these 2 loans apples-to-apples. Yeah, if the HELOC were a 5 year loan you should look at it a-to-a with a 5 year auto loan... but it's not. It's (generally) a 30 year loan that is tied to your home. If you can continue making your current monthly payments I would recommend you do so. Otherwise, there are some great rates out there for autos right now and you could consider refinancing w/ another auto loan - even extending the term if the payments are getting to be too much for you (i.e. if you have 2.5 years left in your current loan, refinance it w/ a 4 year loan). That way the car will still be paid off in a reasonable amount of time.

According to bankrate.com, 30k HELOCs are at 5.57% right now. That means if you refinanced your 7% 20k loan in the HELOC and paid if off over the same period (5 years) as Vegas recommends for an apples-to-apples comparison you'd save ~$13/month in pmt.

I will reiterate that you should NEVER put up your house as collateral for a car.

No offense taken. I understand everything you have stated and I don't disagree one bit. I think when you spell out the potential benefits and disadvantages it becomes ABUNDANTLY clear it's a very unwise decision. In your last post you just stated what the actual differential is ~$13. My point is that if you made that comparison initially, it would have been extremely obvious it's simply not worth the risk to use your house as collateral against your car. In fact, in the post where you spell out that the monthly payment could potentially be less than $100, it made me fearful that some would read it and be enticed by the extremely low payment not understanding the far reaching consquences! The only miniscule potential advantage is tax efficiency - however, in many many cases you can't write off the tax on your HELOC, so even that point is moot.

When people ask me for my opinion on what they should do, I don't ever tell them what to do. I try to lay out the facts like you did to make the choice (hopefully) painfully obvious. It's like attorneys/counselors right now who are helping people decide whether or not to stay in their homes... They attempt to lay out the potentially devastating effects that happen when you "walk away" from your home in a way that people can understand (because a lot of talking heads don't highlight the actual dangers - like being sued by the lender for the differential of owed vs auction proceeds). I'm sure that a lot of attorneys/counselors out there want to just shake their head and tell people what to do, but the best thing they can do is just lay out the facts and let the party decide what's best for them. I think it's clear in the HELOC case which move the consensus agrees is best, especially considering how attractive all borrowing rates are.