The benefit of investing with your home equity
How often do you wish you could generate funds for investment quicker and with less effort? It’s likely quite often. Well, you may be sitting on a way to create money that you may not have even realized it. That’s your Home Equity Line of Credit (or HELOC).
However, many people have been indoctrinated into the thinking that they *must* pay down their mortgage at all costs. For generations, people have scrimped and saved and congratulated themselves after 25 years when that mortgage is paid off, believing it’s the only way because that’s what they’ve always done. It’s what our parents did. It’s what traditional banks have told people to do for decades. It benefits the bank more than anyone else.
How It Works
However, a solution that’s known to many people who make their money work for them, is to use the equity funds accumulated in their mortgage as investment capital for a greater return. A HELOC is a line of credit which is money that has accrued over time, as the mortgage is paid down. You borrow from your bank with a certain interest rate, preferably as low as possible. In today’s economy, the going rate of borrowing is around 6-7 percent. That’s not unreasonable, right? Then – once you borrow on that money against your mortgage – you use it to invest in something that earns you *more* than the interest rate you’re paying. You benefit by paying back your payment plus the interest and you, essentially, become the bank.
An easy example: if you’re paying 6-7 percent interest and you look to invest in our private lending program, which offers a 16% annual return – compounded quarterly – you make more than 10% on your money while still paying the interest on the bank loan. That spread benefits you. The bank still earns their interest and you’ve made more on the interest you make by lending the money.
Always Choose “Good Debt”
Looking at this in another way, you are using the bank’s money to make money for yourself. Quite the wonderful role reversal! This is what’s called “good debt”. Robert Kiyosaki talked about this in his book,“ Rich Dad Poor Dad.” What is good debt and what is bad debt? If you borrow money to buy a depreciating asset that is not earning you any income, a car as an example, that’s “bad debt”. You are not making money on this. You purchased a car, and it costs you money.
And what is “good debt”? Good debt is making more money than the cost of the money you’ve borrowed. The above HELOC reference is an example to of utilizing the bank’s money at a low-interest rate, loaning it out to purchase an investment that makes a higher rate of return, and benefitting by collecting the 10 percent difference between the bank’s interest rate and the rate you are receiving in your investment return.
Banks have been doing this since the beginning of history. They take in customer deposits; they lend it out and charge for it. They lend YOUR money out; they make the spread and reap the benefit. Now you can flip it to your advantage; you take the money out, and then earn a higher interest back and the benefit becomes yours!
Additionally, because you’re investing the money, the interest you pay becomes a tax write-off. This is another way the wealthy become wealthier. This is a huge benefit because now you will be charged less tax and who doesn’t want that?
To find out more on how you can create a HELOC program and put money in your pocket, contact BG Wealth Group at freedom@bgwealthgroup.com or contact our Associate of Investor Relations, Jennifer Arzadon at jennifer@bgwealthgroup.com. Also, to learn more about our Private Lending program, click here.
