Home equity line of credit

[Sean Starkey]

What is everyone's opinion on taking a home equity line of credit to help buy an investment property?

[Jeremy Isaac]

I prefer a HELOC to a cash-out refi because it works like a credit card in that you only pay interest on what you use. This is how I started buying investment properties - getting a HELOC on my primary residence. I also got a killer deal which is 1 point below prime rate for the life of the loan, so right now it's around 2.25%.

The only downsides that I can think of are: 1. The term of a HELOC is generally 10 years which means you need to be prepared to make a "balloon payment" when the loan is due. 2. Even if your DTI ratio or credit improves over the life of the loan and you make your payments on time each month, there are no credit increases. If you want a higher credit amount, you'll need to apply for a new loan.