#EmergencyFund #HELOC #Investing #MortgageAdvice
Hey everyone! 💸 I’ve got a little dilemma and would love to hear your thoughts.
So, I’ve got about $15k sitting in a High-Interest Savings Account, but I also have a ton of unused HELOC room.
I’m considering either investing most of that $15k or throwing it at my mortgage and just relying on my HELOC in case of an emergency. I’m in a stable job with low chances of job loss, so I’m feeling pretty secure.
What do you guys think? Good idea or no?
Some possible solutions that come to mind:
– Keep a portion in HISA for immediate access
– Invest the rest for potential growth
– Pay off part of the mortgage to save on interest
– Utilize the HELOC as a last resort backup fund
Can’t wait to hear your thoughts! Let’s chat. 🤔✨
Some people do it.
Risk of it is completely depending on individual circumstances…
Are you a government employee with a stable job and have large nest egg including somewhat liquid non-registered investments?
Are you self employed who is just starting their investment career?
There’s a near infinite amount of variables, but just showing these two examples has two very different risk levels foregoing a cash emergency fund.
Borrowing from your home to cover an emergency is fine if you can pay it back but interest payments on such large amounts can add up quick and it’s easy to get yourself into a hole..
The idea of the emergency fund is so you don’t have to take on unplanned debt or be forced to cash out your investments at a poor market time.
Depends on your situation and comfort level:
I have an amount in physical cash, some in a basic chequing account and some in high interest savings, all of which I can have within a week if needs be.. but I also have 50+ grand in open room on my credit cards yet alone line of credit…
If you have a stable enough situation something like that can work great.
I do this but only ever had to use my HELOC in temporary situations where I know for a fact the start and end date of the loan I’m taking out from the HELOC. There are obviously pros and cons with this and everyone’s situation is different.
During the heydays of low interest rates, a lot of investment was driven by cheap money and if you could beat your HELOC rate by investing x amount into an investment, you were moving forward on the forefront of leveraging your equity re banks money. With the interest rates at where they are now, anybody who pulled HELOC and aren’t able to pay this back in full are in deep waters.
That being said, I personally love HELOC for the fact that it serves as an PLAN B and PLAN C back up in the event my cash is low. It’s instant and you can immediately draw from it and pay it back any hour of the day via online banking.
HELOC also serves dual purpose for me; it acts as an additional safe guard to title fraud so if anyone should fake my name and transfer it, my bank which has the HELOC opened will be notified first as it’s a charge on the title.
Hope this helps.
I am in a high demand stable job, self-employed and I only keep a 5k float as I do “use” my HELOC as my emergency fund. I’m comfortable with this because of the sector I’m in (healthcare) but I do see why some would feel this is too risky.
I do. 40% of my pay is semi annual. I just make sure the line of credit is paid off in full when each bonus comes in
We do. But we have significant liquid investments and a paid off home.
Never ever use a heloc. Take that that acronym out of your vocabulary.
Yeah. I hold basically no cash – maybe $3-5K at any given time.
HELOC is more than sufficient for 6-12 months living expenses for me if I needed to use it for that.
Only for business purposes, since the interest is tax deductible. Otherwise no.
My wife and I don’t keep an emergency fund.
We aren’t wealthy enough to keep large chunks of cash on the sidelines. We need our dollars working for us.
Our employment situations are stable, and have been over our entire working careers.
While we earn well we live frugally relative to our incomes so if we did hit a bump on employment we could get by on two min wage jobs. The probability of both of us being out of work for a significant duration and both of us only being able to secure minimum wage work is very low.
For every dollar I would have put into an emergency fund at the start of my career I now have around $4 in investments instead.
Once I had a significant sized portfolio I used a $30K LOC as my EF. Zero cost with zero balance, but I had lots of cash on tap in an emergency and I could pay down the LOC from work income or by selling shares as needed. This allowed me to keep my EF “cash” invested and growing.
Yup!
Yeah I do. Obvious risk is that shit really hits the fan and I’m out of work and need to withdraw from TFSA investments to pay it off. And then there’s the risk that investments could be down so I’m selling low.
But I’ve accepted those risks. Everyone will be different with their comfort level.
Try to live the scenario in your head. Imagine you dont have a job, would you take on debt? If you’re comfortable with it, then go ahead. For me personally, I have opted this same option.
Some ppl say they will do such and such but when the actual event happens, they panic and do irrational things.
Never a good idea to rely on equity as an emergency fund. Can have a snowball effect if you can’t pay it off in the worst case scenario. It should always be the very last option. I’d recommend saving up more in HISA
HELOC can be withdrawn by the bank at anytime without notice. What then?
Plenty do, but I think it’s more of a balancing act beyond just yes or no. I personally would keep around 1mo expenses/large car repair bill in a HISA (5-10k is good for me) and then the rest staged in a bit of a liquidity ladder and varying risk levels. The key to me isn’t necessarily that you use your HELOC for emergencies but you have available investments to liquidate to pay it off after the emergency.
At current interest rates, no, not really.
If the standard is to keep 6 to 12 months expenses in an emergency fund, you could keep 3 months expenses instead, and rely on a HELOC for months 4 to 12.
everyone is different, depends how stable you are, it sounds like you are.
remember that your risk tolerance is going to be different than everyone elses, and will change over time – stability can often make you complacent.. but allow you to live a bit less anxiously
15k isn’t a lot of money and you wont make a lot from it without taking on lots of risk.
I would recommend slowly investing it into your RRSP or paying down your mortgage, or whatever you think you want to do, but dont do it all at once. Maybe bring the fund down to half over the course of a year and see how you feel about your finances then before cutting it down to nothing
The majority of my emergency fund is also in a HELOC, although I do have cash on hand as well.”
In a dire emergency, I’ll use the HELOC to cover expenses while I liquidate equities.
I do have cash too, but relatively speaking it’s a small percentage (5%) of my emergency fund.
With interest rates what they are, I’d say not a good idea.
I say it is a bad idea in the current interest rate.
HELOC is one of the cheapest rate to borrow, but with the prime rate right now, I don’t think it is a good idea to put your emergency cash into RRSP or mortgage. Large penalty to get the cash back from RRSP or your home.
Some people may be comfortable with TFSA into an index fund like XEQT. Personally my emergency funds are 90% in CBIL
I have my emergency fund in a separate TFSA. It’s invested but the goal is that at any given point in time, the value of what’s in there would cover me for a few months.