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The HELOC is a great financial tool you can use to reach a variety of financial goals, whether you want to pay off high interest debt, invest in real estate, or pay down the principal balance of your primary residence. In this video, I'm sharing my best tips for using a HELOC in 2024!
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How much can I borrow with a HELOC?
Most banks will allow you to access up to 85% of your available equity, but this can vary based on your lender and your personal finances
How does the interest rate work on a HELOC?
The home equity line of credit works differently than most financial products because it has a draw period and a repayment period. Here’s how it works: the draw period is usually 5-10 years. During this time, you only have to make payments on the interest. Then when the repayment period kicks in, you’re required to pay both interest and principal payments. The repayment period typically lasts 20 years.
Another thing that is different about the HELOC is that it has a variable interest rate. So unlike your mortgage, you aren’t locked into a certain rate. As baseline rates adjust, just like we’ve seen over the past few years, the HELOC’s interest rate will go up or down.
Where can I find a HELOC?
The best place to start is at your local rates and credit unions. Let me tell you why: these smaller institutions can usually offer the most favorable rates and terms. The other thing to consider is that different states have different laws, so staying local is going to be your safest bet.
What can I use the funds for?
There are really no restrictions on what you can use a HELOC for. I wouldn’t advise using it to buy liabilities, but it may be financially intelligent to use the funds to buy performing assets, make improvements to your home, or pay down higher interest debt.
How does a HELOC differ from a cash-out refinance?
A HELOC is sometimes referred to as a second mortgage, meaning it’s an additional product. A cash-out refinance, however, replaces your existing mortgage. Although the HELOC and the cash-out refinance serve a similar purpose, they’re two totally different financial products with different rates and terms. The HELOC is usually the cheaper way to borrow against the equity in your home. Personally, I’ve always used the HELOC – but your mileage may vary.
Can I get a HELOC on my rental property?
Maybe. It can be much more difficult to obtain a HELOC on a rental property than your primary residence. That being said, it is possible. For whatever reason, the banks often consider investment properties to be riskier. There’s not a big market for HELOCs on rental properties, but they do exist. Be prepared to shop around.
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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