Rental Property Investor · Chesapeake, VA · Member since 2017 · 79 posts · 58 votes
I've seen much debate over the true value of a HELOC, but my wife and I went ahead and turned our mortgage into a first position HELOC. Not only do we already have $14k at our fingertips, but we were offered the entire amount at 3.2% fixed for the first year shifting to less that prime rate after that. The payments are $500 month less (mostly due to lack of escrow) than before and we have access to draw on it for 10 years. Are there any recent success stories out there using this strategy?
I've seen much debate over the true value of a HELOC, but my wife and I went ahead and turned our mortgage into a first position HELOC. Not only do we already have $14k at our fingertips, but we were offered the entire amount at 3.2% fixed for the first year shifting to less that prime rate after that. The payments are $500 month less (mostly due to lack of escrow) than before and we have access to draw on it for 10 years. Are there any recent success stories out there using this strategy?
Its successful as long as you're okay with the risks involved with having a floating rate based on prime after your intro rate expires. Usually a heloc operates on Prime + .00 - 1.99% depending on how high in loan to value you went up to on your home (70, 80, 90, 95% LTV) etc since the higher the loan the higher the risk so as always the rate follows that risk upwards.
If you pay significantly more than your monthly HELOC payment like 5-10X you can pay off your mortgage in accelerated fashion by using a first position HELOC. There are strategies around this that are often called pay check parking, but in reality you can park any income/funds you get each month including, rents, interest, wages, salaries, etc into your HELOC to lower your monthly interest due.
I've seen much debate over the true value of a HELOC, but my wife and I went ahead and turned our mortgage into a first position HELOC. Not only do we already have $14k at our fingertips, but we were offered the entire amount at 3.2% fixed for the first year shifting to less that prime rate after that. The payments are $500 month less (mostly due to lack of escrow) than before and we have access to draw on it for 10 years. Are there any recent success stories out there using this strategy?
Its successful as long as you're okay with the risks involved with having a floating rate based on prime after your intro rate expires. Usually a heloc operates on Prime + .00 - 1.99% depending on how high in loan to value you went up to on your home (70, 80, 90, 95% LTV) etc since the higher the loan the higher the risk so as always the rate follows that risk upwards.
If you pay significantly more than your monthly HELOC payment like 5-10X you can pay off your mortgage in accelerated fashion by using a first position HELOC. There are strategies around this that are often called pay check parking, but in reality you can park any income/funds you get each month including, rents, interest, wages, salaries, etc into your HELOC to lower your monthly interest due.
Rental Property Investor · Chesapeake, VA · Member since 2017 · 79 posts · 58 votes
8y
That is definitely our approach. My wife and I have good income from our jobs and the rentals. We went 80% LTV and our floating rate is prime - .375%. If rates rise too high, we just pay off the HELOC and let it sit until they improve, but we have ourselves positioned for high interest rate tolerance. Thanks you.
Real Estate Agent · Sebastopol, CA · Member since 2017 · 56 posts · 161 votes
8y
I have heard that if there is another recession or things hit the fans, the banks have the right to withdrawal the HELOC. I find that this takes away a lot of value that a HELOC has to offer.
I have only read a couple articles about this though so I could be missing some information.
I have heard that if there is another recession or things hit the fans, the banks have the right to withdrawal the HELOC. I find that this takes away a lot of value that a HELOC has to offer.
I have only read a couple articles about this though so I could be missing some information.
This is true but is less of a risk when your HELOC is in 1st position and at lower LTV's like 70-80% or lower. its when you go up to 90-95% that the market only has to have a slight blip for you to be in an underwater / negative equity situation over night.
Rental Property Investor · Chesapeake, VA · Member since 2017 · 79 posts · 58 votes
8y
@Dylan Mathias - Also, my wife has a long relationship with the lender (Wells Fargo) to the point they gave her a discount. I'm not unrealistic. Wells Fargo doesn't have the best reputation these last few years, but getting an interest rate that is below prime is pretty rare. We also have income right now that enables us to pay$3-5k off monthly and a three year "no closing" requirement. We'll have at least two more investment properties by then and that's if I'm slow. I retire from the military in 2021, so we are going to work on this thing. Thank you for the I put @Albert Bui.
Investor · Atlanta, GA · Member since 2015 · 139 posts · 98 votes
8y
I'm successfully using the HELOC strategy to do cash purchases and for down payments. I think the key for me is having strong W2 income that can float you through increased rates if that happens. We've seen a .25% increase in our rate within the last year, but it's still the cheapest money we have access to. I use my HELOC as a checking account, paying all of my bills with a credit card and using the HELOC as a holding place for my income until the end of the month when I pull from it to pay off the credit card. You must make more than what you spend in order to get your HELOC balance back to zero ASAP. In the case of real estate, you can put your rents in the HELOC as well to bring that balance to zero much faster. Good luck!
Rental Property Investor · Chesapeake, VA · Member since 2017 · 79 posts · 58 votes
8y
@Stacey Paulin - My intent is to do just what you said regarding parking my income and cash purchases. My wife and I don't intend to live in this house for more than another 4 years at most so, I figured having access to 80% LTV is better than 60%. That was all I was being offered for my investment properties. Short term, intent is to pay down HELOC and roll a cheaper property into it or purchase more depending on the market. In the meantime, I have an upcoming military deployment and my wife doesn't need my income so, game on! Thank you for the input.
Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
8y
I can't imagine they would withdraw a HELOC from a borrower with solid repayment history.
One of my investments is financed through a HELOC. My dad flipped it, put my name on the title, and I used the HELOC to pay him off. It worked out GREAT, and we're hoping to repeat the process!