Posted by David Butler on April 13, 2001 at 24:39:47:
Hello Mel,
I don’t recall it being mentioned as bad? Maybe I missed something? Actually, when used carefully, and well thought out, it can be a powerful way to start out. But, there are even better ways to work with credit lines, and that’s where you want to go as quickly as you can.
At the conference, it was mentioned an Equity Line of Credit was a bad thing. We are able to easily get this line of credit. Can anyone tell why this line of credit is bad?
Re: Equity Line of Credit = Bad - Posted by gil vazquez
Posted by gil vazquez on May 21, 2001 at 22:08:21:
I am currently researching a home equity line of credit in order to finance a short term loan which will bring in a considerably larger return on the investment. Here’s the scenario… I’m a loan officer and I have a client who needs to address the problem of a foreclosure on his second by using an equity loan. However although there is $70,000.00 equity in the home after the loan is made, hard money lenders won’t lend on the property because the loan to value is 75%. The client has a disability check he is waiting for, for $38,000.00 The loan is for $36,000. The loan is set up for interest only at 18% my equity loan will be charged at 8.99%. My payments on the home equity loan are amortized over 25 years due in 10. Payments are 301.86. The payment made to me by loaning out the equity line to my borrower is interest only amortized over 30 years due in two @ 542.55. Paying off the line of credit is the line plus approximately 300.00 If he misses a payment on the first I can foreclose on the property and sell it in order to realize the equity plus my investment. This scenario is the good use of an equity line of credit.
If you decide to use an equity line of credit without a plan for liquidating it in the near future I would consider caution in borrowing the funds with that kind of loan… also be very aware of your loan to value in case you need to refinance the whole loan in order to liquidate the line of credit.