Cash out Refi. vs. Line of Credit

2 Replies

I am trying to decide on the best way to leverage the equity that I have in my two family home.  The two options are cash out refinance and commercial line of credit.  The cash out refinance will be more expense to complete because it will be a full set of closing costs associated with the new loan.  The benefit I see to the cash out refi is you simply have all your equity or however much you choose (up to the lenders limit) as cash in the bank, and it seems cleaner from a transactional perspective.  

The commercial line of credit seems like a great product as well to pull on when you need it however to fund a whole down payment of say 75K there are significant interest costs associated with it.  And when the interest only payments kick in after the first month what is the best plan to pay down the actual principle balance?  Does anyone have experience with either of these products in the Worcester, Ma market?  I would be interested to hear your thoughts and recommendations. 

@James Pignataro   -  I usually opt for the cash out refinance.  I do this because I know that once the loan closes, the money is mine and I don't have to worry about any 1 year repayments, freezing of funds, or the loan being called due.  Yes, there are closing costs, but I just write it off as the cost of doing business.  I will generate significantly more money once I have access to that cash.

To answer your other question. To repay that line of credit you need to either sell the house you purchased with that LOC money, or refinance it like you're doing with your duplex. This will keep the ball rolling so you can continue to buy and hold assets.