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| View Poll Results: My experience with home-equity lines of credit has been: | |||
| wonderful - I'm much better off with a HELOC than without it! |
  
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3 | 75.00% |
| nightmarish - a costly mistake! |
  
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0 | 0% |
| nothing out of the ordinary |
  
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1 | 25.00% |
| Voters: 4. You may not vote on this poll | |||
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06-14-2004, 09:44 PM
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#1 |
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Registered User
Join Date: Jun 2004
Posts: 40
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Home Equity Lines of Credit Ideas Sought
I'm interested in hearing ideas about how (financially responsible) people use their HELOCs to save or make money. One idea I've used is to significantly raise deductibles for car and homeowners insurance with the knowledge that I have low-interest cash readily available if needed. I figure I've saved about $1,000 in premiums in 2 years and haven't tapped the HELOC yet. Do others have creative ideas to share on how HELOCs can be put to use?
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06-19-2004, 11:41 PM
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#2 |
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Registered User
Join Date: Jun 2004
Posts: 5
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Same Question
I was also pondering the same question. I have just purchased my first home and would like to get started in real estate investing ASAP. I would like to leverage what available money I have, until that time comes, in a way that would benefit me the most at a young age. I was wondering if anyone had ever used a HELOC to invest in stocks, bonds or funds? Is that a careless way of using the money? It seems like not tapping into that money is a waste. Your house will appreciate the same no matter if you have tapped into your equity or not. As long as you can beat the interest rate you are borrowing it at, wouldn't it make sense to invest it? All comments are appreciated in advance!
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06-21-2004, 02:33 PM
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#3 |
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Registered User
Join Date: Jun 2004
Posts: 40
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Not Necessarily
Obviously borrowing in any form for an investment program must be done with caution - especially when your house is on the line. I recently saw where security regulators are strongly recommending against using HELOCs in this manner. Still, it seems that a finacially responsible person having substantially more homeowner's equity than debt, might be able to effectively utilize a HELOC for investment purposes.
Another area that might make sense is with matched contributions to retirement accounts. I regularly see employees pass on 401(k)/457 plan contributions even though there is a substantial employer match. It seems that particularly for older employees, it could make sense to tap their HELOC to help fund the retirement account, get the immendiate 50-100% match and more than likely watch returns exceed the 4% HELOC interest. Of course, the closer you are to the age when you can withdraw funds to help pay off the HELOC, the better. You might also be interested in checking out a new website www.sagetips.com which focuses on creative HELOC uses.
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06-21-2004, 03:01 PM
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#4 |
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Registered User
Join Date: Mar 2004
Location: New York
Posts: 1,351
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Risk vs. Return
Your strategy may be viable, but you must understand that you assuming a higher degree of risk than may be apparent. In most cases (if not all), risk is directly related to the expected return of any investment.
Using a 4% HELOC for investments essentially means that your return is reduced by the 4%, but the risk associated with your investment remains the same. For example, you use a 4% HELOC to invest in a 10% expected return investment. Your "profit" or gain is only 6%, but you assumed the risk associated with a 10% investment. The deductability (if there is any) of your HELOC will most likely be eroded by the taxable gains, dividends, and interest of your investment. The 401K solution by Sage seems to work, because you can hedge your additional risk by the employer match and defer the taxes. As with most investments, it could be the best or worst thing you've ever done with your cash. It really comes down to how comfortable you are assuming this type of investment risk. |
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