Because of the recent home equity line of credit freezes, many borrowers are choosing to withdraw their available balance and save it for future use. This isn’t a good strategy if you don’t plan on using the money soon - your withdrawal will cost you. However, low interest rates make it possible for borrowers to pay only a small percentage of their interest if they withdraw the funds and invest them wisely before they’re needed.

The New York Times recently published a helpful article detailing some of the ways people are temporarily investing their HELOC funds.  Here’s a blurb:

“Those who withdraw their home equity should consider putting the cash into a certificate of deposit, a savings account or a money-market account, Mr. Ben-Ami said…

Short-term liquidity is a key advantage, as borrowers may well be using their credit lines for college tuition bills or as emergency funds if they lose a job or face a major home repair.

Interest rates paid by C.D.’s were at least 3 percent last month, Mr. Ben-Ami said. “So on an equity line of $100,000, the annual cost of this strategy is approximately $1,000” — the difference between a cost of 4 percent and income of 3 percent, he said.”

These all look like good options for borrowers who need to tap their HELOCs in the coming months. Savings accounts and CDs are particularly good choices. But, whatever you do, don’t store your borrowed money in the stock market.

See Also:

Facing a HELOC Freeze? Here’s Where to Send Your Complaints

Some Advisors Urge Homeowners to Withdraw Home Equity

Strategic Withdrawals to Avoid the HELOC Freeze

Tags | CD, Heloc, heloc freeze, heloc withdrawals, home equity line of credit