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What is a HELOC?

 A HELOC is a Home Equity Line of Credit.  Any home or rental property that does not have a loan or mortgage against it can be used to get a HELOC.

Normally a HELOC will be in first position on the property.

How is a HELOC different from a Mortgage?

A mortgage will have a monthly payment that pays down the debt on a ten, fifteen or thirty year schedule.  If you make extra payments on the mortgage you still have to make the scheduled monthly payment. You cannot borrow back the extra payment without getting a new mortgage.  

The interest rate on my mortgages is usually locked in for the term of the loan.  

The fees to get the mortgage were around $3,000.  There are no annual fees, just the interest on the mortgage.

A HELOC will normally have a required monthly or quarterly payment of the interest on the balance owed.  The amount you owe on the HELOC can be changed up or down easily.  

Let's say you have a $150,000 HELOC on a property and you only owe $20,000 on the loan.  You can call the bank and ask them to transfer $130,000 to your checking account and they will do it.  

Then you will need to make the interest payments on the new balance.  If you get a chunk of money you can pay down the HELOC at any time.  Then at any time you can borrow the money again with just a phone call.

HELOC Fees


The fees you will pay depend on what percentage of the property value you want the  HELOC to be for.  

I have two HELOCs that are for approximately fifty percent of the value of the properties. 
The Bank had a Realtor do a drive by valuation.  The appraisal fee was $150.  The bank fee for me to get the  HELOC was another $250 for fifteen years on each property. They filed liens on the properties.  

If I had wanted to borrow 80% of the value of my properties I would have had to pay for a full appraisal and the fees would have come to around $1,000 to $1500 per property.

There is an annual fee of $100 on each of my  HELOCx.  The interest rate on my particular  HELOCs is adjustable every two years with a maximum increase of 1% per year.  

HELOC vs Mortgage Interest

My HELOC loans are for fifteen years.  The HELOCs I have gotten have always been about 1% higher than the long term mortgage rate would have been on the same property at the same time.  

Using your HELOC

I would use money from a HELOC on one of my properties to pay down a long term loan on one of my other properties.  Then I used a zero percent loan to pay down my HELOC to near zero.  If I did not have the zero percent loan paid off by the time the interest free period ran out I would borrow against the HELOC to pay off the zero percent loan.  

I used to own a seasonal business that had significant capital needs part of the year.  I would borrow on my HELOCs and as my inventory was liquidated I would pay off the HELOCs.

I used HELOCs on two properties to buy a property once.  Funny as I own a house that I have never had a loan on.  I have used HELOCs to build a house without having to get a construction loan.   I pay down loans as fast as possible.  I always pay down the highest interest loan first.

HELOC and your Credit Report

Let's say you get a HELOC on your rental house with a $100,000 limit.  You borrow $20,000 on the HELOC.  You pay the interest monthly.  This loan will show as a maximum loan of $20,000 that it is zero percent paid off.

It will look better on your credit report if you borrow $100,000 on your HELOC and pay back $80,000 after a month.  

Then this loan will show on your credit report as a $100,000 loan that is 80% paid off.

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