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[quote=Anonymous][quote=Anonymous]Have never considered a HELOC. Idea of loan against home in case of emergency is frightening. Suppose you do have to tap into the HELOC, what kind of emergency would that be? A job loss, now no job and tapped into HELOC and can't pay back HELOC or mortgage. I can't imagine the necessity of having a 500k HELOC on my home. I save my money and keep it in the bank for emergency. Cash is quicker than any HELOC out there and doesn't come with interest charge. If you have an emergency that requires that much money you just put the roof over your head at risk.[/quote]

A mortgage is a loan against your home. Millions of households have them. It's is not frightening. For the record, you are given a checkbook with your HELOC. It is just as quick as getting out cash from the bank (if not quicker) once it's set up. But regardless, let me give you some scenarios where a HELOC would be useful in an emergency.

1. Let's say you have $50K in an emergency fund sitting in a money market and you have $200K in your 401K. And you have a HELOC set up for $100K (no interest is paid until you actually borrow against it). An emergency strikes and you need $60K. What do you do? You withdraw your emergency fund money but you still need $10K. Should you borrow against  your 401K and incur penalties? Use a credit card with high interest rates? Or should you borrow against your HELOC? Remember, the HELOC repayment is spread over a long term and interest rates are fairly competitive, so monthly paybacks are small. 
2. Suppose you've been saving up for a large purchase, and 4 years ago you you bought some 5 year CDs paying 5% for that purpose.  But the need comes up to buy that purchase sooner. Say that HELOC rates are currently 3%.  Should you cash in your CDs early to make the purchase or use your HELOC and take advantage of the lower interest rate?
3. Let's say you're very prudent and want to keep a large emergency fund of 18 months' worth of expenses because your job is a bit shaky. Unfortunately, You only have enough money for 6 months' savings.  Is it wise to open up a HELOC while you still have a job and use it as "backup" as an extension of your emergency fund? Or should you not have it at all?  If you don't have it, what will you live on after 6 months if you lose your job? Think of it as a second security step that you hope you won't need but it's there if you need it. 
4. Suppose you have lots and lots of money but it's tied up in investments. You need $100K TODAY for an emergency! Luckily, you can write a check from your HELOC because you can't wait a few days to withdraw money from some of your investments.

Many responsible people use HELOCs. They are a great alternative to credit cards in an emergency. They are good to cover you quickly for a few days or a week or a month until you can access money from a different account.  Think of it like this. If you have a $200K mortgage on a $400K house and you need $50K for some reason. It's like now having a $250K mortgage on a $400K house.  Sure, using it like an ATM to go on vacation or build your dream $50K kitchen may not be responsible. But having it as backup in an emergency or using it like a bridge loan until you have access to money that is tied up is very responsible.[/quote]

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