Home Equity Line Of Credit (HELOC)

Using Your Home’s Equity to Invest

This concept has been very instrumental to helping many of our clients build their wealth through real estate. A HELOC is an alternative way to borrow against the equity in your home, providing you with credit that can be used in various ways.

For the disciplined and forward-looking investor, it positions you to take advantage of real estate buying opportunities as they become available.

A HELOC gives you the flexibility a loan does not, because it works like a regular line of credit, except that it is secured against your home. There is no loan payment, and you only pay interest on the funds used which you can always pay off without any penalties.

Once you get approved for a certain amount, you don’t need to requalify or reapply again, unless you want to increase your limit.

The interest rate on HELOCs are typically quite low (as low as prime + 0.50%), making them less expensive than credit cards. We have access to a variety of lenders with a wide range of products for all types of borrowers.

A HELOC can be in:

First position using up to 65% of your home value.

Second position using up to 80% of your home value.

Pros

  • You can use it to consolidate high interest debts (credit cards) into one affordable amount.
  • You can use the HELOC to complete needed renovations on your home.
  • You can use the funds to invest in stocks, a business or more real estate. The interest becomes tax deductible. We have used this strategy very profitably for many of our clients through our LIFT  financial planning program.You can find more details here.

Con

  • If you are not disciplined or have a good cash flow plan, you might end up in more debt down the road by accumulating debt on the paid-off credit cards
  • Leveraging has its downsides, if your investment goes south, not only have you lost money, you still have to pay off the amount owed on the line of credit.
  • You must have a plan to pay-off the balance on the HELOC, otherwise you will continue to accumulate interest payments which can eat into your monthly budget.

When used wisely, HELOCs can be a great tool to add to your tool kit to help you build wealth.

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