Should physician families use a home equity line of credit?

Whether you're buying into a medical practice, paying a surprisingly large tax bill, or merely financing a new vehicle, you may find your family in need of some serious cash sooner or later. Of course, your banker is eager to lend to lend you money since physician families have high cash flows and an excellent reputation to uphold. But banks don't always offer the best terms, and many of their credit products lack tax benefits and flexibility.

In the course of working with physician clients, I often recommend a home equity line of credit (HELOC for short, pronounced "he lock"). A HELOC has several benefits that make it a good match for the physician family who needs a loan.

  • It's big. I've seen doctors who needed as much as $200,000 "in a hurry" and their home equity line of credit did the trick. Credit lines typically range from $25,000, and as large as $350,000.
  • It's fast. Tapping your home equity line of credit is super easy, once it's set up. Most lines come with convenience checks, and some even sport a credit card (yikes!). Making a big-ticket purchase is as easy as signing your name.
  • It's tax-advantaged. Given certain limitations, the interest you pay on your home equity line of credit is deductible for state and federal tax purposes, which lowers the effective interest rate.

HELOC's seem simple enough: go to the bank, get the loan, then buy what you need. But there's way more to HELOC's than meets the eye.