I generally discourage taking out a Home Equity Line of Credit (HELOC). However, I was approached by someone that r-e-a-l-l-y wanted one. She had read that it was a great vehicle for increasing wealth. Her question was “should I wait until the primary mortgage is paid?”
I understand that there are legitimate and solid reasons for getting a Second Mortgage or a HELOC. First, let me explain the difference in these two loans. The HELOC is a line of credit. It will just sit there until you need it. For example, if you get a $40,000 HELOC, you can access it for whatever amount that you need up to $40,000. If you have an expense for $5,000, you’ll simply write a check or withdraw from the line of credit, and you’ll now have $35,000 left to use, if and when you need it. A second mortgage, however, allow full access to the entire amount immediately. So, if your home needs repairs, but you’re unsure of the exact amount, you can get a HELOC and pay for the repairs as they are completed.
Using your equity to maintain or increase the property’s value is a feasible option. Otherwise, my opinion is to only take out a loan against your home if you have a deep-seeded passion in which you are willing to risk being foreclosed upon. Those types of goals usually reap rewards. Look at Tyler Perry, Tiffany Hadish, Steve Harvey, for example. Of course, the payoff doesn’t have to be massive as long as you feel rewarded. On the other hand, if you have equity and feel that you should be doing something just because it’s there… leave it there, please.
It is not uncommon for homeowner’s to get a second mortgage so that they can invest in a company or in a new venture. This is VERY risky, and it is the foundation on which scams are built. If the investment fails, you will loose your home!
