Home Equity Loan or HELOC for down payment

[Darrick Lowe]

I'm looking at a property that would require 200k downpayment + closing costs. This would dramatically deplete my liquid assets. I was thinking of getting a Home equity loan (HEL) or a HELOC on my primary residence which has just enough equity to pay the downpayment.

1) I've never taken out home equity before, and wanted to know how I chose between HEL (5,10, 20yr) or HELOC (10yr draw). One local bank said the HEL would have a fixed rate of 6.25% while the HELOC (80% LTV) is currently at 4.75% if i open a bank account.

2) In addition, I've seen recent posts of people finding HELOC with significantly lower rates (3%) and higher LTV (95%). I've called several local banks, and none of them come close. Is it completely dependent on location? I am in NYC.

3) What happens in interest rates skyrocket and I am on a HELOC? Are there some borrowing tricks down the road (like taking out another mortgage) that I can apply to protect myself from this?

4) Or should I just deplete the liquid assets I have.

I imagine the decision is going to be dependent on how interest rates change over the next 10yrs, but wanted to know if anyone has any suggestions on what they've done recently in similar situations.

[Tony H.]

@Darrick LoweIt really depends on your goal here. Even if you pull money out of HELOC, can you pay it back in less than 5-10 years?

I used HELOC out of my primary residence as a down payment for my rental property.

I had a spreadsheet and planned to pay it off within 4 years. So far it's been on track. And I even beat the goal by half now. (i put my bonuses from my day job to it).

The HELOC rates kept increasing almost every quarter and that scared me.

Part of the reason I was able to pay quickly - between me and my wife, we opened 3 Balance transfer credit cards with 0% interest and $0 transfer fee.

I transferred my HELOC balances to the credit cards and paid no interest in the last 15 months or so - and I plan to keep bouncing them between cards until its paid off.

This method really plunged my credit score though. I went from 800s to 500s.. in a matter of days. lol

But as long as I dont plan to pull more loans, I'll be fine.

Now, my credit score is back up to 700s..because I have paid most of the balances.

Disclaimer: I dont suggest anyone doing the same way as I did.