by Shannee Theus

Basically, a HELOC (or Home Equity Line of Credit) is money that you can borrow from the equity in your house.

Let’s look at how that math works.

  • Let’s say you bought your home a couple of years ago and have a current mortgage balance of $200,000.
  • Today your current home value is $400,000.
  • You can borrow up to 80% of the value of your house. (80% of $400,000 is $320,000)
  • Take that number and subtract what you still ow on your mortgage balance of $200,000. ($320,000 – $200,000 = $120,000)
  • $120,000 – this is what you can borrow. On this amount with a 7% interest rate you’re looking at about $600/month in payment if you’re using the full amount.

Now this $600 monthly payment, it is going to be interest only payments. So you are going to want to make sure that you’re putting some extra down per month to pay that balance down.

What you can do with this $120,000? You can renovate your kitchen, put in a deck, a pool, fix your bathroom, etc. Some kind of home renovation. You could also pay down debt or unexpected medical bills. Or you could buy a rental property, an investment property.

Here’s the cool thing if you went the rental property route. You still have your $600/month payment on your HELOC. But let’s say you’re collecting $1,200/month rent from your tenant. You can use that extra $600 in difference to pay off the HELOC balance. Essentially, you’re not using any of your own money to fund this rental property that you will eventually own out right. Pretty cool!

If you have any questions about HELOCs, rental property, or general real estate questions, feel free to DM us, call us, email us, any of that. Thanks!