1st Lien HELOC On Investment Properties?
Rental Property Investor · Sherman, TX · Member since 2019 · 49 posts · 21 votes
Does anyone know if it's possible to get a 1st Lien HELOC on investment properties? If so, what banks/lenders will do this?
Any lenders have insight into this?
@Alec Hilliard we just got a home equity loan from TD Bank, they are were willing to do a HELOC on rental property
@Ben Zimmerman
I am not going down this rabbit hole again with you. As you stated earlier there are multiple threads to explain this method of paying down ones mortgage. Go read all of those threads. The answer is in there.
My explanation that you seek is there too.
The OP ask about a product. I addressed you, which was a mistake. I addressed the OP's question and provided a link to a product that I believe would help the OP.
We just have to agree to disagree.
@Alec Hilliard
My apologies Alec for taking away from your original question.
@Ben Zimmerman
I am not going down this rabbit hole again with you. As you stated earlier there are multiple threads to explain this method of paying down ones mortgage. Go read all of those threads. The answer is in there.
My explanation that you seek is there too.
The OP ask about a product. I addressed you, which was a mistake. I addressed the OP's question and provided a link to a product that I believe would help the OP.
We just have to agree to disagree.
The OP asked about a product so that he could attempt a methodology. If the methodology is fundamentally flawed, then the product suddenly becomes irrelevant. You can apologize for this thread if you want, but I will not. If I can save someone a lot of money by dispelling the hype surrounding these methods, then I have done something productive with my day.
I have read those previous threads, and hundreds of similar threads. And ultimately none of them provide any meaningful explanation of how a large heloc like this 200k example helps you repay a loan faster than using a different technique that is also much simpler in nature. If this method is able to save you tens of thousands of dollars as opposed to just keeping your mortgage and applying the over payments directly to the mortgage then your method should be incredibly easy to prove mathematically. And yet, nobody is able to actually prove it....instead they simply give up and walk away like you are doing now.
The only debate comes in when the amount being taken out on a heloc becomes significantly less, so instead of a 200k heloc, now we are talking about maybe 5-10k depending on how much income you generate each month, then the numbers obviously become closer between the two methods, partially because the total balance is lower, and partially because now we are able to fully repay the heloc each month where the difference between daily and monthly interest can actually be somewhat meaningful of a concept and the debt is no longer revolving debt carried forward from month to month.
However even when all of the previous threads debate these smaller heloc amounts, they still aren't factoring in any of the random fees that your heloc will be charging such as origination fees for the heloc, yearly account maintenance fees, or early repayment fees etc etc. Penfed as you mentioned charges notary fees and appraisal fees, it charges a $99 yearly maintenance fee if you paid less than $99 in interest through the year, and if you repay or close the loan within 36 months you are on the hook for the entirety of their closing costs. Not to mention that its a variable APR that is already at its minimum amount and therefore has only one direction to go; -up. Once those additional fees get refactored in, even the smaller heloc balances don't make sense financially speaking.
However with large sums like a 200k balance there isn't even a debate to be had because one method is so inferior as to not even put up a fight.
@Ben Zimmerman
Please tell the whole story. Again you only tell part of the story. If you hold the Heloc for more than 3 years ...umm which is something one would consider when getting this product, the fees are waived. The $ $99 fee only occurs if you have NO interest charged for the year. Again which is not likely. 26cents a day to keep the Heloc open really isn't too much of charge anyway.
I am done with this conversation with you. thanks for your input 🙂
@Ben Zimmerman
Please tell the whole story. Again you only tell part of the story. If you hold the Heloc for more than 3 years ...umm which is something one would consider when getting this product, the fees are waived. The $ $99 fee only occurs if you have NO interest charged for the year. Again which is not likely. 26cents a day to keep the Heloc open really isn't too much of charge anyway.
I am done with this conversation with you. thanks for your input 🙂
Incorrect:
† Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary if $99 in interest was not paid during the preceding 12-month period. https://www.penfed.org/home-eq...
The additional closing costs that range in cost from $500-8500 are waived if you hold the loan for at least 36 months and it isn't paid off during that time, no other fees are, including the multiple hundreds for the appraisal and notary which are paid for before the heloc is even approved. If you slip up and repay the full balance then you could easily be on the hook for thousands of additional dollars.
The $99 annual fee is significant because the only saving grace for helocs is the daily calculation for interest, so if you set it up where your bills get paid on the 28th of the month then you could in theory be holding the heloc balance for only ~3-4 days until the first when your paycheck repays the loan. However in this case you aren't being charged nearly enough interest and the $99 fee would kick in.
The 36 months is important since in this scenario you would only hold a much smaller balance on your heloc. But since your paycheck gets direct deposited into your account, you need to make sure that you always have a higher balance on your heloc than your paycheck will be for. If that Christmas bonus kicks in, or if that IRS tax refund comes in, or any number of scenarios happen since your heloc is your checking account, and more money than expected comes in and actually brings the heloc down to 0, then you could easily owe up to 8500 in fees.
Nice try though.
@Ben Zimmerman
For the record, though your explanations have merritt, you continue to display that you are not entirely familiar with what is now called velocity banking. That being said, thank you for providing and proving my point with the PenFed heloc.
OP, if you go with the Heloc on your rentals please let us know how it goes.
@Ben Zimmerman
you continue to display that you are not entirely familiar with what is now called velocity banking.
At any point you are more than welcome to actually correct me and prove me wrong. Its kinda funny how you can keep promoting this idea, yet provide no information whatsoever. You keep saying I don't know what's going on, yet fail to actually mention what key aspect I am missing.
Fact: Putting large amounts of money onto a heloc and carrying that balance for several months, will cost you more money than keeping that money on a lower interest rate mortgage. The 200k heloc as opposed to the 200k mortgage is a terrible idea.
If you don't want the money, I'll donate the 1k to the charity of your choice and screenshot the receipt if you can actually prove me wrong. Until you at least make an attempt at proving your claims I'm done with this thread.
@Ben Zimmerman
So here is what is not going to happen. I am not writing the novel over again. Do your own research. It is in the forums.
Like said you have made some incorrect assumptions about how the process works. You can't do half homework you have to do it all. Go try to prove yourself wrong, as hard as you have tried to prove me wrong, you might lear something.
Hey Alec Hilliard, I have not heard of a bank allowing a HELOC on investment properties. I have heard Frost bank in Texas do a HELOC on your personal property. Unless someone else has a bank that does, let me know. I actually teach it on my youtube channel.
@Rey Tobar : Merchants Bank of Indiana is offering 1st position HELOC on rental properties with 25% down.
@Kerry Baird
I'm an investor in the DFW area and looking for any banks to that will offer HELOC on rental property.
I’ve called many banks ranging from large box one, Chase etc to regional/credit unions, and NONE will offer HELOCs on rental properties. They are willing to offer on primary residence though.
I’m well capitalized, solid P&L sheet, near 800 personal credit score, low LTC...yet none will offer
Is this due to the pandemic and the uncertain times that we are in or a general practice that banks don’t offer HELOCs on rental properties?
@Ben Zimmerman
He’s applying the velocity banking method to accelerate his payment schedule. There are many YouTube videos that explain this.
The idea is to pay a large chunk of your principle with the HELOC and then quickly pay down HELOC with cash flow (in the videos they say income). Once the HELOC is paid off, another chunk toward principle. And start the cycle again
I’m doing this with my student loans on personal residence.
I found that If you can repay your HELOC draw back in 5-6 months. It's works very well.
I'm trying to do that by obtaining a HELOC on my rental property, but having a very difficult time to get any lender for a rental property.
@Ben Zimmerman
The idea is to pay a large chunk of your principle with the HELOC and then quickly pay down HELOC with cash flow (in the videos they say income). Once the HELOC is paid off, another chunk toward principle. And start the cycle again
I understand the concept, and even wrote a masters level research paper on this subject (which sounds silly for a method that doesn't work, but this idea just refuses to die). Paying your loan down rapidly will certainly save you interest as opposed to just letting your 30 yr mortgage plod along for the next few decades.
However, the entire issue with this method is why involve a heloc and put these big chunk balances on it in the first place? A heloc charges a higher interest rate than a mortgage, so by doing this method you are willingly choosing to have a higher interest rate loan than is necessary. Instead of rapidly paying down your heloc to chunk again, why not just rapidly pay down your mortgage?
If you chunk for lets just say 50k, and your mortgage is at 2.5% and heloc at 3.75 which I believe is the lowest many places will go, (including penfed which has been brought up many times in this thread). In this case you will pay over $50/month MORE in interest by having that 50k balance on your heloc, as opposed to on your mortgage. If you are going to apply your cashflow, or income, or profits, or whatever these YouTubers decide to call it, then why apply it to the heloc and pay 50/month extra interest for no reason? You could have skipped getting a heloc entirely, made the same payment directly towards your mortgage, and saved yourself 50/month which would further increase how fast you are able to repay your loan since you are paying less in interest that means more money is available to go towards the loan principle.
If that YouTuber mentions that the reason this 'method' works is because a heloc is simple interest than that should be your first clue that you should unsubscribe because a mortgage is simple interest too.
If they mention it works because you get to skip ahead on amortized interest schedules then you should unsubscribe because interest is calculated based off your loan balance. So if you have a 200k mortgage, and decide to do this method and chunk for a 150k balance on your mortgage, and 50k balance on your heloc, then you still have a 200k total loan balance. Therefore your total balance between the two loans has stayed the same. The only difference is now you are paying a higher interest rate on the 50k that is on your heloc.
YouTubers that advocate this method ultimately do one of two things. They say a bunch of gibberish and hype, yet never show an actual payment schedule showing you that this method does in fact save you money as opposed to putting it towards your mortgage, or they make simple, fatal math errors in their calculations. Post a link to your favorite tutorial video and I will point out the problems for you so that you can see for yourself.
There is no realistic way that carrying a high balance on a heloc, will save you money as opposed to simply putting any extra payments directly towards your mortgage and skipping the heloc entirely. If liquidity is an issue then there are plenty of cheaper ways to go about obtaining liquidity than to consistently pay $50/month in extra interest.