What Are Home Equity Lines of Credit (HELOCS)

Frank Chen

Hi, this is Frank Chen with REIClub.com, the only site you need as a real estate investor. Today I've got a quick video on Home Equity Lines of Credit, aka HELOCs.

Loans vs. LOC

Fixed-rate loans are essentially 2nd mortgages. You borrow a set amount and repay it in fixed monthly installments over ten to 30 years. Usually an option if you need a given amount all at once say for home improvements, or to invest in real estate.

Line of Credit (LOC) – You might arrange for a $50,000 line, for example, then borrow $1,000, $4,000, or $5,000 simply by writing a check. Payback is as flexible as withdrawal, often with interest-only payments allowed during, say, a ten-year borrowing period. You will pay interest only on what you borrow, so if you don't borrow you won't owe anything.

Example:

Buy a home for $100K 5 years ago.
$75K remaining on your mortgage.
FMV is now $125K
$50K Equity (if credit is good, get this total amount)
Access via specialized checks or credit cards
Basically your home is used as collateral on this personal loan

It all depends on the lender's loan-to-value (LTV) ratio, your credit history and the interest rate you're willing to pay

Advantages of HELOCs

Good for when you need cash now
Can be used for repairs or pay off debt or whatever you want, some HE loans are specific purpose
Down Payment for investments
Some Tax Deductible Benefits on Interest
Only charged interest if you withdraw money
Interest rates are usually pretty low
You can pay it off and re-borrow
Better repayment flexibility
One way to improve your credit as long as you pay on time

Disadvantages of HELOCs

Adjustable Rates – May spike your monthly payments
Interest Only Payments – Higher monthlies later on
Low interest rates may cause you to spend more
Putting your home or real estate at risk of foreclosure
Additional Fees – Annual

Home equity lines of credit (HELOCs) provide a unique financial option for investors. Depending on your situation, credit score, equity in your home, and debt, this may or may not be the best fit for you. I'm not encouraging you to use a HELOC to get started in real estate, but I did want to provide you with an option you may not have thought about before.

There is definitely risk involved so it's very important as a real estate investor to do your research, and speak with your lender on all the details associated with this loan process.

Again, this is Frank Chen with REIClub.com. Please take the time to leave your comments for this video below and please subscribe to our YouTube channel so you'll be automatically notified when we upload more quick video tips for you. Take care and good investing.