Like many homeowners, you are probably sitting on a whole load of home equity right now and wondering how you can put it to good use. Many homeowners believe that using a HELOC loan (home equity line of credit) to pay off their mortgage is a good idea. It’s possible, yes, but whether or not it’s a good idea depends on a lot of factors. For instance, the two driving factors are: how much equity you have and how large the remaining balance on your mortgage is. Using a HELOC to pay off the mortgage could save you money if you secure a lower interest rate compared to the current mortgage rate.
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However, this strategy comes with a lot of risks. HELOC rates are pretty volatile—your interest rate and monthly payment could change at any time. Given the current economic crash and global recession, it’s much more likely to happen.
Before you jump in, let’s evaluate some key drawbacks and considerations:
HELOC Loan: Pros & Cons of Pay Mortgage
| No | PROS | CONS |
|---|---|---|
| 1 | Banks offer HELOC without charging lots of upfront fees, making it an attractive option. | Interest rates can change over time, and they could easily rise above in the future. |
| 2 | HELOC gives more options and flexibility to use the money over time. | HELOC is not a great idea for those who need the discipline of a fixed monthly mortgage. |
| 3Much lesser interest rate if the primary mortgage is old. | HELOC is a risky move because even if it’s used to pay off the primary mortgage, it’s still another loan and potentially increases debt in the short term. |
Final Verdict
Whether you should use a HELOC to pay off your portage or not is a decision depending on your personal situation. However, it should primarily be based on the current happenings in the financial market. One of the most significant factors you need to be wary of in today’s market is the trend of increasing interest rates.
That being said, you might not want to pay your mortgage off early at all. You shouldn’t be thinking about mortgage loans before your retirement years, and paying them off isn’t always necessary if you are young. Experts believe that it might not be a good move, but if you use it as a viable investment, the benefits could be tenfold.
Qualifying for a HELOC Loan in 2022
You must possess home equity to qualify for a HELOC. For the means of explanation, home equity is the proportion of your house that you hold entirely, and it is determined by summing the current market value of your property minus the owed mortgage amount. If your house is worth $550,000 but you owe $375,000 on it, you have $175,000 in equity.
According to Black Knight, a US-based home equity lending and mortgage servicing, national home equity values reportedly hit a record high of $9.4 trillion. In addition, the average homeowner currently has $178,000 in equity/ borrower. Many homes should be eligible to secure a HELOC in 2022.
However, there are several drawbacks you may find if you use this lending methodology. For starters, while a HELOC loan may be relatively straightforward to apply for in the short term, you may be enticed to withdraw more than you absolutely require. However, keep in mind that any cash borrowed from your HELOC will incur interest and must be returned. If you start falling delinquent on those repayments, you may lose your house, as your home acts as your HELOC security.
Additionally, interest in HELOCs is often fluctuating. This implies that when your pay back your HELOC, your monthly mortgage repayments may climb over time, rendering it increasingly challenging to meet.
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However, if you desire to obtain credit, a HELOC might be a fantastic option provided you understand the associated ramifications. This is particularly true now, because you may have greater home equity than you did previously. To be explicit, you do not have to apply for a HELOC simply to renovate or repair your property. Although these are the most popular justifications for having one, you can spend the cash from your HELOC for whichever reason you like.
The Next Step: Buying Crypto with HELOC—A Viable Investment
Cryptocurrency has performed tremendously well over the last couple of years. It has quickly grown in popularity and with over 300 million crypto users being active in 2021. Like every other market, crypto has witnessed its fair share of low, but that doesn’t mean crypto investments aren’t worth it.
Although recent declines have cost investors millions of dollars, we can’t turn a blind eye to all the billions of profits crypto has yielded over the years. If you are looking to invest in crypto and you don’t have the cash, you can borrow against your home’s equity.
How does Investing in Cryptocurrencies with a Home Equity Loan work?
It all began with Bitcoin, but thousands of new cryptocurrencies have emerged over the years. Some of the most popular ones include Tether, Ethereum, Dogecoin, Cardano, Solana, and new ones are coming along every day.
Generally, there are no restrictions on how borrowers can use their home equity loan proceeds. So, there isn’t anything stopping you from using a chunk of equity you have built-in your home on cryptocurrencies.
The Risks of Investing in Cryptocurrency
Investments, whether in crypto or anything else, always come with risks. If you want to make a wise financial move with a home equity loan, you at least need your investment to increase in value more than the interest you pay on the loan. This amount should be greater after accounting for all the taxes on your investment gains. Currently, crypto profits are taxed at the same rate as others.
So, your investment needs to be very well calculated and adequately analyzed before you jump in. You must remember that using your HELOC to invest in crypto and losing it all is something you don’t want so you should decide accordingly. Crypto experts always say that when investing, one must only invest as much, which won’t bankrupt them even if they lose it all. However, that does not mean using HELOC for crypto investment is 100% risky. If you observe the market trends, invest in a profitable coin, and make calculated moves, chances are you could make substantial gains.
The Bottom Line
Albeit risky, you can use a home equity loan for crypto investments. It might come with a risk, and the losses could be devastating; there have been significant gains with some cryptocurrencies over the years. All that matters are your timing and how informed your decisions are. If you are lucky and make calculated moves, your crypto investment will grow at a rate many times the initial amount, and you are likely to make a fortune.
