Rental Property Investor · Tracy, CA · Member since 2019 · 29 posts · 7 votes
I have a property with decent equity. I'm wondering if I should use a HELOC or do a cash out refi to access the equity and buy another place. What are the pros and cons and what have you done yourself? Thanks!
Rental Property Investor · Fort Collins, CO · Member since 2015 · 128 posts · 327 votes
7y
Generally speaking, you'll get a higher interest rate and more flexibility with a HELOC.
With a HELOC, you pay little or nothing up front and can borrow or repay whenever you want, up to the limit. With a refi, you have up-front refinance charges (you can finance these into the loan, but don't think that that makes them go away), and then you get your entire amount immediately, at interest. You can't partially repay an unused amount. Advance principal payments on a mortgage don't lower the payment; they shorten the term, which is meaningless if you do another refinance before the term ends.
Also, a refinance changes the interest rate on all of your existing debt. A few years ago, this might have meant lowering it. Today, it probably means raising it.
In short, cash-out refinances were great in 2013, when people wanted to refinance anyway to lower their rates. Today, they're less sensible. You'll probably prefer a HELOC. Of course, it's much harder to get approved for a HELOC (most lenders will only do one on your primary residence), so you may not even have a choice.