Heloc or home equity loan?

3 Replies

HELOC - Lower interest rate, use it as needed and don't start paying on it until you use it. For these 2 reasons I believe it is better. Your rate should be lower and it isn't a loan, so as soon as you have paid on some of it, that credit opens back up for you to use again - like a credit card.

@Josh Michael it would depend on what you are using it for really.  I'm assuming this is on your primary home?  And that maybe we are using the money to buy another property?  Or use for the downpayment on the property?  If I have any of this incorrect please let me know...

Two of the common areas of concern for HELOCs I see out there is the 10 year maturity date and the adjustable rate. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. With rates moving higher, it is likely that your rate will increase in the future. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC for 10 years it will cease to be a HELOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when is matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.

All that means that if you use a HELOC then you need a plan to pay it back. Without the ability to pay it back you could get caught when rates adjust. Now, HELOCs are AMAZING products....so I don't want to come across as bashing them. Many investors use them, pay them back, use it again, pay it back, and so forth. Flippers for example. So if you have a play to pay it back - then that's a good product. If you do not have a plan to pay it back, then the fixed rate loan would be a better loan for you. I hope all of this makes sense.

@Andrew Postell the only uncertainty about the heloc is the adjustable rate,not really crazy about it, but yes I was considering buying a multifamily and using the equity in my current home. I've also seen people who have a heloc to pay off their current mortgage because you pay less in interest.

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