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Home Equity Line of Credit for Investment Property

Over the last decade the number of Brits investing in ‘buy to let’ property has skyrocketed. More and more people have turned to property as an alternative to traditional investments or pensions, benefiting from both rental income and capital growth.

However, buying investment property can be tough. Unless you have large reserves of cash, adding properties to your investment portfolio is a slow process. Buy to let mortgages are available to around 70-80 per cent of purchase price, but that means you have to find a 20-30 per cent deposit for each property that you buy.

One way of raising the cash you need to help you build your investment property portfolio is through a home equity line of credit.

What Is a Home Equity Line of Credit (HELOC)?

A home equity line of credit is a credit facility that is secured on your property. Typically separate from your main mortgage, it allows you to borrow some or all of the equity in your home. A lender takes a legal ‘charge’ over your home as security for the facility and you can then withdraw cash up to your pre-agreed limit as and when you need it.

For example, if your home was worth £150,000 and you had a £75,000 mortgage, you would have £75,000 of equity. You may decide to set up a home equity line of credit for £50,000. This allows you to draw down up to £50,000 as and when you need it. You pay capital and interest on the loan only as and when you draw the money.

A home equity line of credit differs from a home equity loan. A home equity loan allows you to withdraw some or all of the equity in your home, but it is payable as a lump sum. You receive the cash in one go and start to pay back the total loan immediately.

Home Equity Line of Credit for Investment Property

Using a home equity loan to build your property portfolio may not be ideal. You may draw the total loan which sits in your bank accounts for months until you find a suitable property to buy. In the meantime, you’re making capital and interest payments to the loan.

A home equity line of credit can be a better solution as you can agree the borrowing and then draw the cash only when you need it. Once you have found an investment property, you can then draw the money you need – for the deposit, for a cash purchase and/or to cover fees – and you will only start paying the money back once you actually use the money.

Home equity loans of credit tend to be flexible and they allow you to repay the loan and re-draw it at a later date. So, if you buy an investment property, improve it and sell it on, you can repay your home equity line of credit with the proceeds. You can then draw down some cash at a later date when you find another property to buy.

A home equity line of credit therefore offers an excellent ‘chequebook’ style facility for you to use when you’re building up your property portfolio. You only pay interest on the money that you have borrowed, allowing you quick access to cash to snap up a property bargain.

To access the money tied in your home equity and get a great loan rate, fill our loan form on the right now.