HELOCs are lines of credit, typically in second position.  Clients can draw on the line instantly once the line is established and use the funds for any purpose.  Qualifying for the loan is done up-front and there is no re-qualifying or application to access funds.  Payments during the first 10 years are interest only based on the balance on the line.  So, if there is no balance, there is no payment. For WAFD bank HELOCs, the draw period is 10 years.  After 10 years, the 15 year principal and interest payback period begins.  Some banks offer balloon payment HELOCs where the full balance is due at maturity.  

“If I get in financial difficulty, I can always borrow on my home.”  Borrowing money during tough financial times may not be possible or may be more costly.  But, setting up a Home Equity Line of Credit when you don’t need it, means it is ready for you when you do.  Note, HELOCs require documentation of income, assets, etc. just like your first mortgage.

“I don’t need another payment.”  Remember, HELOCs are a credit line, so there are no payments if you do not have a balance.  Besides, if you use the line to pay off higher interest debt, you would be reducing your payments.  According to the Federal Reserve, the Average Credit Card rates are nearly 20% in 2019. Rates on HELOCs are typically Prime plus a margin from zero to 2%.  Prime as of Oct. 4, 2019 is 5.0%, so HELOC rates are 5%-7% depending on credit, property type, occupancy, etc. 

“Can I get a HELOC on one property to buy another property?”  This is a commonly asked question.  The answer is typically yes.  In fact, Washington Federal even offers HELOCs on investment properties.  So, many investors take a HELOC on one property help them buy another one. Also, some clients want to buy a new home, but their equity is their down payment.  They don’t want to sell first, then rent while they shop for or build a new home.  So, they take out a HELOC in their old home to buy the new one. 

“Is a HELOC tax deductible?”  Note, the usual caveat; “consult a tax professional.”  The general idea is that interest paid on HELOCs is only tax deductible if you can show that the use of the funds was for improvements to the home (primary or second home).  But, neither is interest on credit cards and other types of consumer debt. 

“Can I use a HELOC to buy out my Ex?”  Yes, buying-out an ex from their interest in a property is a common use of HELOCs.  The great thing about this purpose is that additional principal payments can be made, lowering the minimum payment.