Home Equity Loan

[Jeremiah Miller]

Hello, I'm just getting started in real estate. I'm learning ways that I can hopefully buy or make a large down payment on my first rental property. A home equity loan or HELOC seem to be my best options right now. Although I've found many great resources on BP to explain how to obtain a home equity loan or HELOC, I have not been able to find information on the repayment process. Could any one explain this to me or post a link to a helpful BP post? Thanks.

[Jon Holdman]

HELOCs typically have a draw period and a repayment period.  During the draw, payments are sometimes interest only, sometimes based on the amount you've taken out.  Usually, at any point you can lock in the loan and convert to a fully amortized loan.  At the end of the draw period the balance will usually be automatically converted to a locked in rate and fully amortized.  Lot of hedging in there because terms vary quite a bit.

If you're going down this road, be very sure you can repay the HELOC even if your RE investments completely fail. Otherwise you run the risk a bad investment resulting in you losing your residence.