Using primary residence HELOC to lend money?

[Taylor Green]

Hi,

I was wondering if it was a good idea to lend money from a HELOC on your primary residence?

My thinking is if I own my primary residence free and clear, I take out a HELOC and use it to invest in lending opportunities when the difference in interest makes it worth it...

Ex: HELOC @ 6% vs. Private Loan @ 12%.

In theory, at least to me, this makes sense. I have tried looking for past threads about this and didn't find much on the lending side of it. Is there any downfall to this strategy?

I could refinance, but I just prefer not to have mortgage payments on my primary residence. Thanks.

[Ellis San Jose]

Originally posted by Taylor Green:

Hi,

I was wondering if it was a good idea to lend money from a HELOC on your primary residence?

My thinking is if I own my primary residence free and clear, I take out a HELOC and use it to invest in lending opportunities when the difference in interest makes it worth it...

Ex: HELOC @ 6% vs. Private Loan @ 12%.

In theory, at least to me, this makes sense. I have tried looking for past threads about this and didn't find much on the lending side of it. Is there any downfall to this strategy?

I could refinance, but I just prefer not to have mortgage payments on my primary residence. Thanks.

It is a source of capital but not without risk.

If you are a lender on a loan that goes bad & you are unable to make the payments on your HELOC you could lose your house in foreclosure.

I am not sure I understand your statement "I prefer not to have mortgage payments on my primary residence". You would have monthly payments when you borrow from your HELOC but not when you aren't using it. The difference with a refi, is that you would be have monthly payments on the proceeds from whether you were using it or not. Another risk to a HELOC is banks usually reserve the right to close your line under certain conditions.

Also, you have to consider that HELOC is typically an adjustable rate that can move very quickly against you if you are not careful.

With a straight refi, you have the choice of locking in a longer fixed term. 15-30 years.