Stretching HELOC Dollars with a Market Reset

[Joseph C Schmitt]

After recently refinancing a duplex, the remaining equity will allow me to open an interest-only HELOC with a maximum withdrawal amount of $21,300. The HELOC is fixed for the first 5 years and then it will adjust with prime, the draw period is 15 years, and the amortization schedule will be 30 years.

Since I think the market is hot/inflated right now, and inventory is low, my goal was to get a high appraisal, lock in a HELOC, and use it to buy properties at a discount down the road (assuming that prices will reset within the next 5 years). My concern is whether it is common for banks to have clauses in a HELOC product that will allow them to stop the draw period at any time due to discontent in dropping housing values. I worry that if we experience another market bubble like in 2008, the bank will assume that my property isn't worth the prior appraisal, and will try to discontinue the draw period in fear of not having enough collateral during a foreclosure. Is this common? If I can't pull it when prices drop, then this long term strategy will need to be replaced with a more immediate project.

Thank you for any thoughts, I am planning to close on the HELOC next Tuesday, 2/27/18, and will be reading the fine print for the loan in advance once the bank sends it to me tomorrow morning. Cheers!