Need Help! Possibly dug myself in a hole with Interest Only Heloc

Need Help! Possibly dug myself in a hole with Interest Only Heloc

Staten Island, NY · Member since 2015 · 265 posts · 59 votes

Hello all! So i decided on getting a HELCO because I want to get my first investment property and I have equity in my primary residence I live in now. Basically i spoke to TD Bank today and agreed on terms, but I have not signed anything yet. They will send me my application via email. I just want to know if I did the right thing or If I made a mistake and if so can I back out.

Current Home:

Purchase Price = $255,000 (30 year VA Loan /w 4.0 Interest rate. Traditional.)

Downpayment = $50,000

Monthly payment = $1,268

I have been making payments for about 14 months thus far so total money invested about $65,000

Have around $190,000 left to pay.

Property Valued around $310,000.

TD Bank agreement:

58,000 line of credit

$713.00 per month interest then after 10 years Principal kicks in.

Interest rate 3.50 from ($248,000) 190,000 + 58,000 = $248,000 which is how that number came up.

Had to open a checking account to get a discount for better rate.

$99 free for closing cost and $50 annual fee from 2-9 years.

The rep said I would be saving money long term, but spoke to my accountant and says this is a bad deal. Says I will be paying all interest and no equity in home until after 10 year. Thoughts?

127 views

Most Popular Reply

Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes

@Eric DeVito Your numbers are flawed somewhere. if you paid $255000 and gave a $50,000 down payment then you borrowed $205,000. that means you still owe $200,774.06 on the house. the reason is of your $1268.00 payment only $978 is for your loan service. the rest is taxes and insurance. Of the $978 loan service on payment number 14 you paid $308.43 to principle and the remaining $670.27 dollars was Interest on the loan. right now and for the next 11 years your interest payment will be higher than your Principle Payment. In Sept of year twelve you will start to go the other way. On the Sept Payment of year 12 you will pay $488 dollars Interest and $489 dollars of Principle. You will reach a $190,000 loan balance in November of year 3. Its true you will not get any equity in your home unless you pay down the HELOC. @Ryan Dossey is right unless you find one heck of a deal your investment will never pay both loans. I would not attempt this until you have a better understanding of what is and isn't a good deal as well as a basic knowledge of how Loans actually work. RR

See this reply in the discussion

47 Replies

Jump to latestLatest

Sort by

Ryan Dossey
Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes
9y
After 10 years does the principle "kick in" or does it need to be repaid? What's the term of the HELOC? If you use your Heloc for the DP on a 2nd property that isn't severely discounted you're about 100% leveraged on the 2nd one. I'd be very careful. (not to mention heavily leveraged on your primary)
0 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@Ryan Dossey
Yes the principal kicks in after 10th year. 30 year term. But have 20 yrs to pay off principal when it kicks in or can make early payments. I think I will back out and just leave my existing mortgage as is and just take out a line of credit.
0 Reply
Ronan M.Pro Member
Rental Property Investor · Chicago, IL · Member since 2015 · 352 posts · 281 votes
9y
There is no way you are paying $713 a month on a $58K Heloc at 3.5%
Something is wrong there. Are they adding the $58K to your primary mortgage or something ?
Yes with the Heloc you only have to pay the interest for the first 10 yrs then principle and interest thereafter. But you SHOULD be able to be paying down the principle in amounts you want from day 1.
But regardless...if you draw the full $58K your interest only payment could not be $713. Somebody somewhere has their wires crossed. Double check with your banker.
1 Reply
Ralph R.
Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
9y
@Eric DeVito Your numbers are flawed somewhere. if you paid $255000 and gave a $50,000 down payment then you borrowed $205,000. that means you still owe $200,774.06 on the house. the reason is of your $1268.00 payment only $978 is for your loan service. the rest is taxes and insurance. Of the $978 loan service on payment number 14 you paid $308.43 to principle and the remaining $670.27 dollars was Interest on the loan. right now and for the next 11 years your interest payment will be higher than your Principle Payment. In Sept of year twelve you will start to go the other way. On the Sept Payment of year 12 you will pay $488 dollars Interest and $489 dollars of Principle. You will reach a $190,000 loan balance in November of year 3. Its true you will not get any equity in your home unless you pay down the HELOC. @Ryan Dossey is right unless you find one heck of a deal your investment will never pay both loans. I would not attempt this until you have a better understanding of what is and isn't a good deal as well as a basic knowledge of how Loans actually work. RR
4 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@Ronan M.
Yes that is exactly it. I owe about 190,000 and they are adding the 58k on top of that because that is the credit I will owe.
Says first 10 yrs is interest and then after that principal and interest
0 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@Ralph R.
I owe around 190,000. I have already paid around 14/15 monthly payments of 1268 which is on top of the 50,000 down payment.
The TD bank rep said she recommends I continue to pay around 1200 right from day 1 to pay off some principal as you said. If it is going to be interest payment of 713 for 30 years then it is not worth it.
0 Reply
Ralph R.
Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
9y
@Eric DeVito I'm not seeing how 14-15 payments of 1200 dollars takes 15000 dollars off of the initial loan. It doesn't work that way. Some thing is not right here. 5% interest only on a 58000 loan ls less than 200 dollars a month. Not 700 dollars.
2 Reply
Paul DefnginPro Member
Lender · Rockville, MD · Member since 2008 · 498 posts · 199 votes
9y
Eric DeVito &Ralph R. The math is correct. $248,000 x 3.50% / 12 months is $723.33. That being said, Eric, what was the rate on the "$190,000 before you refinanced and consolidated them with the HELOC.
0 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@Paul Defngin
Original loan had a 4.0 interest rate for 30 yrs fixed. Now this new one has a 3.5 interest rate.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
sounds like they are refi ing the whole shooten match into a new first loan..
however if its a true heloc make sure you ask if they can call it at any time.. IE freeze it or call it due. Most heloc's are set up that way and many find them selves in trouble when economy changes.
I would NOT do this to buy rental property unless you were buying some of those super cheap homes in the NE say 20-k all in that rent for 800.. and your right there to watch them like a hawk.
maintenance and cap ex will eat up your money quicker than you relalize I would only do this kind of capital for quick flips in and out profit each deal. that's me personally.. your not going to get rich or even comfortable buying ONE rental.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
1 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@Jay Hinrichs
This is for a $37,000 SFH rental property. I spoke to few banks and they do. Not offer traditional loan because considered high risk. So I figured use a Helco to just pay it off pretty much as a cash buyer.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
Not my thing.. and the last thing I would personally do... your taking on all this debt on your personal resi on a proprety that is risky and for what to make a few hundred a month...
landlording is about scale.. and if you can't find a clear path to 5 to 10 houses in a short amount of time I personally would not borrow against my equity that's a nice rainy day fund.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
plus if this is a TRUE heloc read the fine print it probably has a lock out provision and a call provision you buy low end no liquid rental what happens when they call the loan. if the loan has no call provision then that's better or you negotiate it out of the docs. I rescued a lot of borrowers in my HML days that got Fubared by HELOCs being call in 08 to 2011
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
2 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@Jay Hinrichs
I have to get started, if I have equity then why not use that instead of letting it sit doing nothing. What other options are there.
0 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@ jay
@Jay Hinrichs
I can call back and cancel it if it is a bad deal.
0 Reply
Mark Douglas
Investor · Nashville, TN · Member since 2015 · 429 posts · 143 votes
9y
@Eric DeVito Maybe call a few different community-specific banks and run the scenario by them as well? You're right, in that people use this strategy quite often, however, it seems like adding the 58k to your existing principal isn't setting you up with the best opportunity
0 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@Mark Douglas
Yes, I will do that. I have not signed anything thus far so I will try to call TD bank to cancel
0 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
well update. Lender declined my application due to high debt to income ratio. So looks like I can start over and perhaps work with a local lender or credit union.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
Eric just based on experience leveraging your primary is a risky move in many instances especially to buy C and D class rentals... it just is.. for a myriad of reasons.
but its your money your house your life... if your happy go for it.. we are just giving you our personal opinions.... that's all. but I think you will find most if not all TRUE HELOC's have gotcha's in the fine print
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
3 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@Jay Hinrichs
I understand that, I am not saying anything in regards to anyone's opinion. What do you suggest then if Heloc's are not the best in your opinion.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
save your money put 20 to 25% down and start buying rentals if that's what you want to do.
in those price points look for sub too deals with smaller downs.. I don't recommend sub too deals for price points higher than that unless you have significant cash reserves. Or just borrow a little and see how it goes or put it on a credit card ( down payment) and pay it off in a year
@steve Vaughn follow Steve he has built a very impressive portfolio by the boot straps in another post he said in 14 years he now has 34 rentals.. mix of homes and small apartments.. and he says he used scortched earth policy to get there.. Plus he is in Wenatchee area were props are quite a bit more money than what your describing and its more competitive ...
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@ Jay
@Jay Hinrichs
Okay. I did try with a few banks so far and said it would be too high risk for them to give a loan out for a property purchased at/around $37,000. This is with 20% down Perhaps I can try with a local lender
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
if its high risk for the local bank why is it NOT high risk for you..
C and D class is a very good way to lose all your money by the way.. unless you are EXTREMELY hands on.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Franklin Romine
Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
9y
@Eric DeVito
If it was me personally I would do it. I like risk and the unknown.
Most people will just continue to watch videos, read posts, go to work and be safe and secure there whole life....

Franklin
1 Reply
Eric DeVito
OP
Staten Island, NY · Member since 2015 · 265 posts · 59 votes
9y
@Franklin Romine and @Jay Hinrichs
I suppose everyone has their own ways of investing. Guess it is up to me then. Thanks for the help.
1 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.

Log In Join for Free