By Trevor .H – Nov, 30, 2021
Would you like to hear something super terrific? If you are a homeowner, you can use the equity in your home as a line of credit or what people also call a HELOC (Home equity line of credit).
Let us go back to the start of the millennium, the year 2000. I was 20 years old and needed cash desperately. I was a broke human being with a whopping zero dollars in my back account. I remember going to the local bank one day and inquiring if I could get a line of credit, loan, credit card or even just free coffee.
After sitting in the waiting room for 30 minutes, and awkwardly glancing at a beautiful bank lady, I finally was called into an office to chat with another banker. I explained that I was broke and that I wanted any kind of credit possible.
To my complete and utter surprise, I was approved on a 20k line of credit. I thought to myself, “Was the banker on drugs? Why the heck would anyone lend me 20,000 big ones?” I celebrated my new found wealth with chicken wings and beer at the local pub.
After 3 pints, I logged into my web banking app and there it was – All these lovely zeros with two infront of them. It was time to make some serious decisions. I pondered. Perhaps the right thing to do, the responsible action would have been starting a small business or paying off some school debt.
I made the decision most 20 year-olds would make. I went to Europe for the summer and when I returned, I had to purchase a new car. I was right back to having zero dollars, but I had a fantastic summer, nonetheless.
Fast forward to the present – It is 2021 and it’s twenty years later since being a completely irresponsible young adult. I have turned my life around. I no longer spend money frivolously and I am Frugal with a capital F. I only spend money on things I need such as coffee, empanadas and my hot wife, who takes most of my dinero.
As I scroll through the vast amount of social media, I notice videos about finance, investing, and making money.
Many wealthy investors speak swiftly of using their assets to purchase more assets. Thus, a conversation ensues about home equity line credit.
What is a home equity line of credit or HELOC?
It is a loan. A lender agrees to lend to the borrower a specific amount of money based on the equity of the borrower’s home. The equity is the collateral.
Dumb Fact – Many people use a home equity line of credit and go bananas with it. They party, go on luxurious vacations, and spend their entire investment (home equity). This is what the banks want. While they don’t necessarily advise people to spend the HELOC on stupid stuff, they own your equity until they get their money back.
Fast Fact – Many people need to tap into their home equity to cover things like home renovations, paying off school debt, and unexpected medical costs. These costs make a little more sense in terms of using a HELOC.
Let’s get real –
If you aspire to prosper, you could invest wisely and use your home’s equity to invest in more real estate. Buying a rental property could make a quality investment or investing in businesses. This is what I would do because the thought of being rich one day is intriguing.
What are some advantages of a HELOC?
Getting money for whatever you need is always terrific
Look at marriages in the U.S. They are not cheap to say the least. The average wedding costs a staggering 30k. Do yourself a favour, get a cheap shotgun wedding in Vegas, and don’t gamble while you’re there. 30k saved is 30k earned.
Interest rates can be low
When greedy, money hungry bankers have a tight grip on your property, meaning it’s secured debt, they can offer low interest rates. Less risk, less interest. In most cases.
Helocs are flexible
For instance, if money is tight at times, you have the option to pay interest only. This can be beneficial if you are managing many investments as unexpected costs could arise, leaving one with more monthly payments than originally planned.
Look at it like this –
With a traditional mortgage on a 200k property, let’s say the monthly payment is 800 dollars. 600 is paying down the principal balance and 200 dollars is thrown out the window (interest). You can choose to pay the interest only. But don’t do this forever, unless you want to “kick the bucket” with debt.
Plain and simple, if you want to use your home’s equity to invest and make more money, great. My mama always said, “It takes money to make money.”
Disclaimer – I am not a financial expert. Please read full disclaimer if you care to.
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