A financial advisor explains how to calculate your leverage capacity and use a home equity line of credit without overextending yourself. The key is matching your debt to your actual cash flow, not just what lenders will approve.
I like the idea of being debt free and avoiding debt when I when necessary. But I also like the idea of leveraging debt when it makes sense to create cash flow and build more wealth. Well then, where's the happy medium? What's my way of measuring my what I call leverage capacity? So if we have a $76,000 line of credit times 2/3 is $50,160, then $1,066 $43 of cash flow times 12 $12,797.16. This is your chunk range. I never want to owe more than 50,000 on this $76,000 home equity line of credit. And when it comes to paying off debt, to go faster than making extra payments in a year, you're going to need to leverage more than 12,796 16 in advance.
