Tap Home Equity: HELOC vs Sell Now and Invest
Example: Current home value: 600000 $ · Current mortgage balance: 220000 $ · HELOC amount to draw: 100000 $ · HELOC interest rate: 8.5 %/yr · HELOC repayment term: 10 yrs · Investment return on proceeds: 7 %/yr · Expected home appreciation: 3.5 %/yr · Comparison horizon: 7 yrs
| HELOC path advantage vs selling now | $-3,134 |
| HELOC path net wealth at horizon | $557,584 |
| Sell-and-invest net wealth at horizon | $560,718 |
| Total HELOC interest cost | $48,783 |
Worked example
Home worth $600,000, loan $220,000. HELOC: draw $100,000 at 8.5% for 10 years ($53,000 total interest). Invest the $100,000 at 7% for 7 years → grows to $161,000. Home at 3.5% appreciation reaches $768,000; equity after loans: about $448,000. HELOC path total wealth: $448,000 + $161,000 - $53,000 = $556,000. Sell path: net proceeds $344,000 invested at 7% for 7 years = $556,000. In this example both paths produce similar wealth — but the HELOC path keeps you in the home and benefits from continued appreciation.
Frequently asked questions
What is the biggest risk of the HELOC path?
HELOCs are typically variable-rate — the prime rate plus a margin. If rates rise, the HELOC payment rises with them, potentially squeezing cash flow. Additionally, keeping a HELOC open means two debt obligations (mortgage + HELOC) against the home. If property values fall, you could end up with negative equity.
Does selling always trigger capital gains tax?
Not always. The IRS allows a capital gains exclusion of $250,000 (single) or $500,000 (married filing jointly) on the sale of a primary residence you have owned and lived in for at least 2 of the last 5 years. Gains above these thresholds are taxable. This calculator does not model tax — factor the exclusion into your sell-path net proceeds manually.
When does the HELOC path clearly win?
The HELOC path outperforms when home appreciation exceeds the HELOC interest cost and the investment return on HELOC proceeds is positive. It loses when appreciation stalls, the HELOC rate is high, or the proceeds are used for consumption rather than invested.