refi or heloc /analysis paralysis

15 Replies

Hi Everyone,

I am in Analysis Paralysis phase... I have a home with some great equity in it. I could get a Heloc right now with a low interest rate and get 170,000 out so I can invest in other things. Alternatively, I could refinance for a 30 year and get the money out. Which would you do and why? Thanks for your help.

@Brenda Maddox It really depends on your goals. If you're looking to get the property paid off, while retaining access to equity, HELOC is the way to go. If you don't want the property paid off, then the cash-out ReFi is the best option.
I recently opened a specialized 1st position Heloc on my property, and I liked it so much that I left my job in Medical sales to work for a company that specializes in them! It allows me to aggressively pay down my principle balance, saving interest cost, but I can access my equity any time. Among other benefits, it features a 30 year draw period, rather than the typical 10 for most Helocs. 

@Brenda Maddox It depends on the current mortgage interest rate and whether or not we are talking about a primary home? If its a primary and you wouldn't save much in the refi, I might consider the HELOC. If you are talking about a rental property, then you might consider a refi- if your rate gets cut quite a bit. Any other thoughts from people out there?

@Justin Phillips Ok what I want to do is get cash out so I could maybe get a foreclosure on the court house steps and maybe flip a few homes? Debating between doing a few flips vs find a home fix it up and rent it out. Right now everything I look at has a ton of offers on it and most of them have cash. Also, if I do the Heloc then that is likely to affect my debt to income ratio so I don't want the Heloc getting in the way of me buying another home. Thanks for your help.

@Michael Metzger It is my primary home and I have a 2.62 rate on it and it was a 15 year mortgage, I think I have 8 or 9 years and it will be paid off. I want to try to used cash to buy and fix up other properties. I mostly want to buy and hold in really nice neighborhoods but it is difficult to be competitive with these cash buyers. I also need to move really quickly next time I see one and have done the calcs and know it might also cashflow. I just don't know how to get started, I am thinking it's analysis paralysis and it might be time to take action. There are so many great ideas, cash flow a property vs solid equity property in a class a neighborhood vs flip a couple to get some cash. Thanks for responding, I appreciate it.

@Brenda Maddox Given the current environment with historically low interest rates, but inflation looming, I would definitely refinance over doing a HELOC. You are going to lock in at an interest rate that literally can't get any lower versus a HELOC that is going to likely have a floating interest rate. If rates go up in 12-18 months you will be faced with higher payments and likely have to refi in a higher rate environment. Inflation is real risk, lock the cheap money in while it lasts!!

@Brenda Maddox It's such a seller's market right now, I am not super excited to buy more property at current prices, so unless you are really good at finding gems I would be patient. I like real estate notes and/or note funds that provide short duration loans with a first lien security and pay a 6%-10% current dividend. With typical LTV's at 65%-85%, worst case scenario in a default you own the property at a much better entry point. Best case scenario, you refi out of your current property at 3%-5% and you create a nice little interest rate arbitrage while you wait for a better buyer's market.

Yes for sure it is a sellers market, I can't believe the amount of offers I see going into these beat up properties, even the expensive ones. I am good at digging through and finding the gems but just can't compete with the cash people.  Thanks for the advice!

@Justin Sherrock Definitely raises a good point. It's really up to your goals, and how you want to get there. If you're not looking to get anything paid down to zero, now is a great time to pull cash out and pay a low rate on a 30 year amm. loan. 

My wife and I are paying down our first position Heloc, to save interest, but also to increase our reserves to pull from. When a deal comes up, we'll simply write a check off our line to purchase in cash. The idea is that we'll finance the majority of our deals going forward ourselves. The credit line used does affect DTI, so that's something to keep in mind too. Based on your equity position that may, or may not be a big factor.