Pros and Cons of a Home Equity Line of Credit for House Projects

21 April 2017

One of the largest challenges that investors in the real estate industry have to face is finding good funding. Financing capital plays a vital role in real estate deals. It is necessary for not only closing deals but also making improvements to house projects to make the business more profitable. As much as finding capital is a daunting task, you can get funding by taking out a home equity line of credit (HELOC). As it is with all things in real estate, everything has its advantages and disadvantages. Here are a few points highlighting the pros and cons of utilizing a home equity line of credit for your house projects.

Pros

Flexibility

A HELOC allows you to pay on only what you use for instance if you take out a line for $50,000 and only use $20,000, then your repayment will only be based on only the $20,000 and not the full amount. You will therefore get a chance to keep your payments as low as possible. A HELOC offers you the chance of increasing your payments whenever you wish but you will only be hooked on the interest part.

Low terms and Rates

HELOCs come in different terms than the conventional 30-year flat mortgage. A majority of the HELOCs are usually based on a prime rate or other index, which hovers around the all-time low. There are lenders who offer flat rate options but on second loans not liens. They also come with lower monthly interest options. This enables you to pay only the interest for the first 10 years thereby increasing your cash flow and get more profits on your money.

Portfolio Expansion

When you opt for a HELOC on a property, it enables you to grow your portfolio fast. You get the chance to utilize funds that were not being used and getting 12-24% on any new purchase. You will enlarge your portfolio using your funds and at your own set terms.

Cons

Equity Reduction

Equity is important regardless of it being an imprecise number. Any further loan is added to the total owed and the more the equity you get, the higher the number of available options. You can sell or refinance when values increase if equity allows, but if it is not there, you will have to keep the property until things change.

Extra Loan Repayment

Although your payment is reduced, you still have to make new payments. Your line is used to pay for other extra items instead of increasing your business. You only add to your debts by increasing the line.

Final Words

It is evident that a HELOC offers you more repayment flexibility. It allows you to borrow only what you need whenever you need it. It might be the best option for your house projects as its pros outweigh the cons.