HELOC Share your thoughts and experiences.

[Luis Escudero]

Good evening B.P community. I am on the verge of going through the process of obtaining a HELOC. I would like to hear some of your experiences. What you learned, what you would do differently. How a HELOC helped you in your investments. Look forward to hearing from you guys.

[George Gammon]

@Luis Escudero Smart move Luis.  I'm not sure why anyone would suggest doing a refi first because you'll be under increased pressure to put the money to work?  In other words, you'll be making payments before you find a deal.

What's nice about an LOC is you don't make payments until you use it, so you can take your time and find a good deal, then start making payments.  

My guess is you'll want to buy a rental prop?  If this is the case, I'd strongly suggest terming out the debt once the the property is purchased you want to keep long term.  Why?  Better interest rate, but far more importantly you can transition the debt into 30 year fixed rate and lock in an artificially low rate.  

I purposely used the word "artificially" because very few Americans realize 30 year fixed rate mortgages would not exist in a free market.  Meaning the banks would never issue that loan because it most likely loses money, due to inflation, over the long term. 

You're paying the bank back with cheaper dollars than you borrowed.  This creates a transfer of wealth from the lender (bank) to the debtor (you).  So why to banks do the loans?  Before the inks dry the sell the paper to fannie and freddie.  

In other words 30 year fixed rate mortgages are subsidized by the tax payer.  

I'm not a big fan of it, but if it's there, I'm going to use it, and I suggest everyone do the same.  It's free money and it's the only asset (I consider it an asset) in the US that's currently cheap.  Real estate prices are sky high, if you have to buy, buy with cheap debt.  You'll definitely make money on the debt, so it hedges your downside on the property, and if the prop goes up in value it's a double win.  

Hope that helps,