Emergency Fund or Adjustable HELOC
Question: I have an adjustable HELOC which was used to pay the 20% payment down on my fixed rate mortgage. It has gone from 6.5% to 8% in less than a year and will be credit-card-like shortly. The cap is 18%, i.e. a very bad credit card.
I am still recovering from the home purchase and do not have a decent emergency fund (< $1000). If I were to lose my job I would have to sell the house immediately. Given that, I’ve run some numbers and found that I could manage to pay the HELOC off in two years, but it would leave little to build an emergency fund. It would be nice to pay down the HELOC before its rate gets much higher.
What do you think? Should I try to pay down the HELOC ASAP or focus on building an emergency fund. A six month fund will probably take a couple years to build.
Answer: I don’t think I’m at risk. It’s a county job I’ve been at for 5 years. Also, I have no debt other than the mortgage and HELOC, no children or spouse. Don’t smoke, drink, gamble, or have other expensive hobbies. Don’t eat much. I am in shape and haven’t been sick for years. I walk to work, but drive a paid-off older toyota when I absolutely have to.
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