HELOC 1st Lien Position

[Douglas Middleton]

Hi fellow BP Colleagues! I am searching for a lender that will provide a HELOC in the 1st lien position on 3 rental properties I own. I am finding lots of evidence of this elusive loan product around the BP forums, but have yet to locate a lender who will offers this loan type. I live in the Raleigh NC locale. I have three rentals with a pretty good amount of equity and I would like to tap that equity while I'm paying the loan down and increasing my equity as efficiently as possible. Looking forward to getting some guidance!

[Nicole (Dunlap) Pendergrass]

I'm currently a member of Replace Your Mortgage. They do give you a list with a bunch of banks and a lot of them do 1st position HELOCs on rental properties - just might have slightly different terms than for a primary res. They also give you a list of questions to ask the bank when you are qualifying which product is best for you (so you can compare apples to apples). This is NOT take a HELOC on your primary and use it to pay off the rental, this is take a HELOC on the rental that pays off the rental's current mortgage(s) and so the HELOC is the only loan/loc on the property and is in 1st position. Could they call the loan due in a downturn? Sure, just like any other bank could if you "violate" a rule. Why is it not likely? Because the HELOC is now in 1st position (not 2nd behind a mortgage), so they have the full value of the home as collateral if you default. A lot of those builders w/lines that got called in 2008-10 more than likely didn't have 1st position collateral backing the line (maybe just the builder's track record/balance sheet - can't say 100% bc I'm not a builder! lol).

Though I understand everyone else's viewpoints, I'm as the same mindset as @Douglas Middleton. I want to access the equity in my home for other cash flowing assets w/goals of maximizing the spread btwn the interest I'm paying on the HELOC and the interest I'm earning on the asset.

One major downside is most HELOCs are adjustable rate, and I'm certain rates will be increasing even more in the near future, so finding a bank that has a rate-lock option is my hedge.

I've looked into this strategy a lot, seen the comparison numbers, and am still looking into different utilization strategies. But even if you only wanted to pay your mortgage off faster and not invest, it works as long as you are disciplined, don't increase your expenses w/o at least a corresponding increase in income and basically use the HELOC as your checking account.