If you’re thinking about tapping into your home’s equity with a HELOC, or home equity line of credit, there are some things you should know. Some of the best strategies, tips, and tricks around using a HELOC are not well known.
On today’s show, I’m going to walk you through some of the hidden secrets you should know in order to successfully utilize a HELOC. This is the kind of financial education from your banker or financial advisor, so click play to learn more!
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The first secret you need to know about successfully utilizing a HELOC is all about shopping around. Listen, I love sites like Bankrate or NerdWallet for comparing banking products, but they’re not going to let you in on this secret. The best way to find a HELOC is actually by shopping local. Nine times out of ten, your local banks and credit unions are able to offer the most competitive rates and terms. In fact, your local banks want to build a relationship with you, so they may even be able to sweeten the deal if you open additional accounts. Don’t be afraid to sit down with a few local bankers to see what they can offer you. You might be pleasantly surprised!
Here’s another secret a lot of people don’t realize: you can actually use the HELOC to pay off your primary mortgage. If you play your cards right, you can essentially decimate the interest and time on your mortgage. Clearly, your bankers aren’t going to tell you this. They want to keep you locked into that 30-year mortgage! This is a high-level strategy that requires a great level of discipline, but trust me, it works.
Next, you can use a HELOC to buy performing assets like rental properties. Again, the HELOC is intended for home improvements, but using it to buy performing assets is a perfectly valid use of the funds! In fact, I’d argue that having HELOC funds at the ready is a smart strategy for any real estate investor. Here’s why: since the HELOC is a revolving line of credit like a credit card, it’s a great tool to have in your pocket. Smart investors are always keeping their options open, so having that line of credit available for when the right opportunity arises can help you take advantage of great deals.
Another factor you need to consider about getting a HELOC is that it can be risky. Here’s why: a HELOC is a secured loan, with your home as collateral. So if you get yourself in a situation where you can’t pay back the line of credit, this could mean big financial trouble for you. Any time you’re planning on using a HELOC, be sure to calculate and plan your payback strategy. Don’t do it unless you know for sure that you’ll easily be able to make your payments. Especially when you’re buying an investment with a HELOC, you’ll want to double check your numbers to make sure your cash flow can easily cover the extra monthly payment.
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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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