HELOC or Cash out refinance?

4 Replies

Hi @Brad Fletcher , I'd recommend a HELOC due to the flexibility alone. You may do a cash-out refinance and have cash, but if you haven't found a property, you'll be holding cash that isn't working for you and you have a higher mortgage payment more than likely. You could also look at getting a 1st Lien position HELOC and use it like a checking account to really expedite the equity availability.

Originally posted by @Brad Fletcher :

I'm looking for a good breakdown or sample scenarios of when it's best to use a HELOC versus a cash out refinance on our primary home to purchase an investment property. Given the current market and interest rates.

I would probably refi if the new rate is about 1% less than my current rate.

We did a heloc because our current rate was good and it only costed $300 altogether to establish.  Refi's usually cost thousands and the qual process more in depth. 

What's your current rate?  Fixed or adjustable? 


@Brad Fletcher , normally I would 100% agree with @Joseph Firmin on the HELOC vs cash out, although not necessarily on a first position HELOC. However, they are practically giving money away right now. If you can cash out at less than 3% fixed, that is awfully hard to turn down. You could throw it into a HYSA while you are looking and only pay 2% on it. However, if you aren't going to do anything with it than even paying 2% doesn't make sense.

It's hard to give a good breakdown or sample scenario without knowing the specific numbers and situation you are working with. WAY to many variables. I would say that a HELOC is better if you are going to use the money over and over again, a la flips or BRRRR. That makes it more than worth the interest rate risk and higher interest rate. However, if you are just going to park the money into a single property then I would lock in the lower rate...depending on a variety of other factors. With the HELOC your payment is only going to go up.

With a HELOC your monthly payments will be interest only based on the amount you withdraw. With a cash out you will typically be making amortizing payments of principal along with the interest based on the entire amount you borrow. If monthly cash flow is an issue at all, the HELOC will be superior every time, especially as typically closing costs are de minimis.