Investment Heloc vs. cash our refi

3 Replies

Hi smart people,

I am deciding between pulling capital out either through an investment property HELOC or cash put refi. Which would you choose and why?

HELOC

~60k out (80% LTV)

-no origination fee, $99/year which can be waived if your interest is equal or higher to that $99

-Interest rate- 4.75% variable

-closing fees if closed before 3 years

-interest only on money taken out

-interest only payments for first 10 years

Cash out refi

-43k out (75% LTV)

-$2,400 for 1 point+ lender fees

-interest Rate- Fixed @ 3.325%

-increase monthly mortgage payment by $50

I have a property in contract and planning on using this cash for a downpayment and repairs. Any and all info would be super helpful! Thank you

Hi @Taylor King , I think it ultimately depends on what you're going to use the money for and how long you plan to keep the property you're pulling the equity from. Typically if you have an immediate deal that you're going to put the money into, then I'd recommend the cashout refi since it's a lower rate and it'll reset your amortization period at that rate (not sure what rate and remaining terms you're at currently), especially if you're planning to hold this property long term. I have HELOCs on my properties to use as backup funds for situations that arise when I need the money (repairs, bridge loan for property acquistion, etc), but I'm not currently using it for long term debt if that makes sense. I don't think there is a right or wrong answer though, I think it just depends on what best fits your goals

Based on the HELOC info provided, this is almost identical to the PenFed HELOC that I just setup. I went through a similar 'HELOC vs Cashout Refi' analysis, and ultimately went with HELOC since I didn't have an immediate need for the money, I just wanted access to my equity if or when I needed it.

@Taylor King , it depends on multiple factors:

If your current rate is already good and also the fund needed is short term and you can pay off within 5 years, then it's make sense to use HELOC.

If your current rate is currently pretty high and it will take a while for you to pay off the money, then it worth to cash out refinance to secure the rate in a fixed rate, and as well get a lower rate. There is an option also for a Lender Credit to cover closing cost, but you will get a slightly higher rate. You have to calculate the PI difference and how many months it will cover the closing cost before it is break even.

Also HELOC rate is variable, usually based on Prime Rate. We all know about 2 years from now FED plans to start tapering and increasing rate, so the HELOC rate at some point maybe around 3 years from now will start climbing up.

Good luck with your investment.

    @Brendan Miller

    Thanks for that perspective. My plan is to use it as more of a bridge loan to purchase and do repairs before refinancing and paying back the HELOC. The Heloc does give 20k more, allowing for the potential for another property purchase.

    The cash out refi would drop the interest rate from 3.5 to 3.375 plus go from an amortization period of 19 years to 30 years. It adds about 60k in interest to overall price of home. My thought is I would be paying a lower interest on the initial principal plus the cash out portion with the refi. Where as for HELOC, I would only be paying a higher interest on only the percentage that I use.

    I am leaning towards the HELOC, but just wanted to hears peoples thoughts on the two. Thanks again!