Many know what a HELOC is. Many don’t know what a LILOC is and therefore don’t have one.
This article will quickly explain both. If you think a LILOC may be a good fit for you I will share how you can get one easily.
HELOC
For those who don’t know what HELOC is, it’s a Home Equity Line of Credit. It’s reliant on the equity of real estate which is an asset.
A HELOC provides some freedom by unlocking equity in your home for you to use as you see fit – renovations, travel, consolidate higher-interest rate debt on other loans such as credit cards, etc. This equity is working capital.
According to rates.ca, 27% of Canadian homeowners have a HELOC, and 58% of Canadian HELOC holders have an outstanding balance.
If you’re disciplined in repaying your HELOC it’s a great tool. If not, it can turn into a nightmare.
The max HELOC is usually 80% of the available equity of a home calculated as assessed market value by a home appraiser less any existing mortgages with consideration to your credit viability.
Despite HELOC popularity, there are some things many are not aware of.
Invasive
To be qualified for a HELOC you must pass the lenders financial credit underwriting. This includes a home assessment that you normally pay for, proof of income (personal tax returns, business tax returns if incorporated), proof your property taxes are paid, proof your income taxes are paid, proof of assets, credit check, social media views check, and anything else they want. The process has been described like they are peaking through your drapes.
Many entrepreneurs, as a tax play, will split some of their income with a spouse. Lenders don’t really understand this when it comes to their requirements. Lenders want consistency of individual income, not combined income. If both spouses are self-employed each of their incomes may vary from one year to the next. One year on spouse may have an exceptional year. This means there is more income from one year to the next to split. Lenders don’t like this. They put income consistency of individual income ahead of total family income and paying lower combined income tax. They must not understand paying more tax reduces disposable income to service a HELOC and other loans.
Because of these rules entrepreneurs may need to forgo saving tax, including forgoing legitimate business deductions to keep their income on their tax returns high to satisfy lenders debt serving requirements.
No Control
Control is one of the things people say they want. But they’re willing to give up control in more ways you can imagine.
Control of the terms of a HELOC are not under your control. Lenders have the right to change its terms over time – the main one is interest rates. Lenders will also monitor your credit record.
Further, if the market value of your real estate drops you still have 80% access but 80% of a lower number. This means if your HELOC is maxed out when real estate values drop be prepared for your lender to require you to pay it down. If you cannot the lender can foreclose on your real estate.
Corrosive
Another unknown HELOC issue is the “hidden fee: you’re not told about. This fee is also hidden with mortgages and other loans. This fee is an “inflation fee”. Inflation is “corrosive”. This is linked to something called “Fractional Reserve Banking” where Bank of Canada is obligated to print new money to fund every loan the lender approves. When the Bank of Canada prints more money the value of your, and everyone’s money declines every year. This means you’re sabotaging yourself and every Canadian.
This “inflation fee” is a “tax” that not only borrowers pay, but even people who don’t borrow money. This inflation tax “devalues” your money, which means it no longer purchases as much as it did before. You don’t see this tax added to your LOC payment. Rather, this tax is taken from you when you spend your money – when you see the price of the things you buy continue to increase.
This tax partially fuels overall inflation. By how much you may ask. Inflation from 1960 to 2022 has averaged 3.74% annually. This means that the value of your money has been reduced my 3.74% every year since 1960. A 1960 dollar is now worth $0.16. A 1935 dollar its now worth $0.04.
Who is to blame for this? It’s the federal and provincial governments deficits and debt, the Bank of Canada, and all the deposit-taking lenders who use Fractional Reserve Banking.
There is another one to blame for inflation – you, me, everyone who borrows money from a deposit-taking lender who uses Fractional Reserve Banking.
Erosion
Because you pay the HELOC interest to the lender, every dollar of interest you pay erodes your net worth.
LILOC
A LILOC, the name I give it, stands for a Life Insurance Line of Credit. A LILOC is like a HELOC. The equity for a LILOC is the cash value in a whole life (WL) insurance policy that you own. WL is the most secure asset in the world and has an annual tax-exempt return on par with or better than real estate over the long term. This cash value is the LILOC working capital.
A LILOC can also be referred to as Infinite Banking Concept (IBC). IBC is the formalized process of borrowing from whole life insurance policies and paying them off multiple times over the lifetime of an individual. The term “infinite” suggests infinite uses and ongoing.
LILOC has also been referred to as an “operating account” because the available funds can be used as an operating account individually or in a business.
Unlike a HELOC, a LILOC provides access to up to 90% of the WL cash value or more. Why more than a HELOC? Because WL cash value is more secure than real estate.
Non-invasive
A LILOC is a WL policy loan. There is no loan approval process for a WL policy loan. Therefore, its non-invasive, unlike a HELOC.
Because the life insurance company lending process is non-invasive there is no need to forgo deductions to reduce your tax. Lower tax may mean more dollars available to capitalize cash values and/or to repay loans faster.
Control
People like guarantees. The cash value in a WL insurance policy, which is your LILOC’s equity, grows guaranteed every year. This means your 90% loan access increases every year, unlike a HELOC.
Borrowing from a LILOC is contractually guaranteed.
With a HELOC you must apply for increases which is dependent on the many invasive credit underwriting requirements.
This means you have more control with a LILOC than you do with a HELOC.
Non-corrosive
A LILOC does not contribute to inflation because it does not use Fractional Reserve Banking. A HELOC is corrosive because it contributes to inflation.
Non-erosive
Because the policyowner receives annual dividends on their WL insurance policy, and because the loan interest paid contributes to the dividend, the policyowner recovers some or all the loan interest they pay. This is not the case with a HELOC.
Further, the WL cash value continues to grow uninterrupted because you are borrowing funds from the life insurance company, not from the WL cash value in your policy.
Both contribute to increasing your net worth. This is not the case with a HELOC.
HELOC or LILOC?
Both are ways to access working capital for things you need or want.
A LILOC is better than a HELOC in preserving your wealth without having to jump through hoops.
You can’t take advantage of a LILOC unless you include a high-yield dividend-paying WL insurance policy in your portfolio.
For more information how you can create your own LILOC, contact me today here.
