When it comes to asset liquidity, you do have to make choices. Usually, however, liquidity is not a problem if you have substantial home equity. It's true that a few years down the road, you might need a chunk of cash for college tuition or some other big expense. But should you need additional money, there are two popular and relatively inexpensive ways to get it. You could take a home equity loan, which is like a second mortgage. Though interest rates vary from bank to bank, the rate on a home equity loan is usually from one to two points above the prime rate.
Like a mortgage, it has fixed payments for the term you specify, usually for 5 to 20 years. It's true that you will pay interest, but think about it this way. Suppose you put an extra $10,000 on your down payment. If your mortgage charges 6 percent interest, you are saving $600 a year, the amount it would cost you to finance the 10K. It’s as if you are getting 6 percent interest on a savings account. If your home equity loan for 10K charges 8 percent, or $800 per year, in effect it only costs you $200, or 2 percent interest.
A home equity line of credit is another good choice. Instead of borrowing a large sum all at once, you draw money out only as you need it and only pay interest on what you owe.
The interest rates on both are attractive, but they have another advantage. Interest paid on both of these types of credit is tax deductible up to $100,000, regardless of how the money is used. Closing costs for either type of loan are low.
Blessings to your Real Estate Investing Success,
Milton B. Yates
www.miltonyates.com