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Should you Take out a Home Equity Line of Credit? (HELOC)

I recently got an email from a friend and client of mine about whether or not it made sense to take out an equity line of credit. Here is the email that I sent back to them.

Hey (CLIENT)! Hope you guys are doing great!

I would always advise having a HELOC on the property – even if it’s just for liquidity. I have a 300K HELOC on my home, just sitting there in case I need it.

Here are the up-sides:

  1. You only pay on what you owe,

  2. It’s super flexible,

  3. If you go through the bank, they are generally free. (I used US Bank)

Here are the downsides:

  1. They are adjustable and interest only – you DEFINITELY want a plan to pay it off.

  2. Rates are increasing. When the fed raises rates, it directly affects your payment.

  3. The process can be tiring. Working with the bank is annoying – but I still think it’s probably worth the outcome.

So – here is what I would say:

  1. YES, it’s a good idea to do an equity line – regardless of whether you use it or not. Access to liquidity is key – even if it’s just for safety.

  2. It’s best to go directly to a bank or credit union vs. using a lender like me. Most independent lenders don’t service HELOCs, so we don’t have the ability to offset your costs with any direct revenue.

  3. The banks hold the HELOC’s, so they make the interest on them, and therefore will pay for your appraisal, pay for title reports, etc. It should be free to you.

  4. I would get the biggest line you qualify for.

  5. You only pay on what you owe, so just don’t max it out and you’ll be fine…

  6. Sometimes the higher limit, the lower the rate – because if you have the ability to borrow more, they charge you less… So this is a bit of a “hack” to get a lower rate.

i. Also if you have a higher limit you are less likely to have swings in credits score due to lines being maxed out.

Hope this makes sense! Let me know how I can help out!

Daniel Lehman

The Lehman Group


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