Refinance or Home Equity Loan?

Question

I own 2 homes. Primary- bought for $200k and have $150K left to pay.

Secondary- bought for $140k and have $100k left to pay.

Goal is to lower the interest rates on the primary or both preferably. Is it best to refinance both, or get a home equity loan and refinance one? Any thoughts are appreciated. Thank you

Nicole Galchutt · Answer

I would leave your secondary as is. The primary may be worth refinancing. What state is that home in?

Jane Kai · Answer

@Nicole Galchutt currently my primary is at 4.75% and secondary at 3.85%

Justin Phillips · Answer

@Jane Kai I'm a huge proponent of a specialized heloc tied to a zero balance sweep checking account, it's known as an "Offset Mortgage" overseas. The line of credit is set to 80% of current value, so you have access to that equity any time, but you don't have to pay for it until you use it. With positive cashflow, it creates a large snowball effect where the principle balance and interest cost are both dropping rapidly. As soon as there's room to pay off your second property, getting rid of that debt service will free up more cashflow, and help the math work faster. You retain access to equity for 30 years, so many people use it to quickly and efficiently increase their portfolio while not over-leveraging. My wife and I have it on our property, and it's been great! We got the line set based off these inflated prices, and we're putting idle funds to work until the market turns, at which point we'll write a check out of our line to finance the next property.

Nicole Galchutt · Answer

If you plan to hold your properties for some time then I would refinance. What rates do you currently have on your loans?

Scott Braun · Answer

If your goal is to lower your interest rate, refinancing is going to be the way to go.

However, what are your goals? Do you plan on selling in the next couple years? If so, there's a good chance it would not make sense to refinance.

If these are rented out, are you still going to be cash flowing every month?

If your goal is to buy more properties but don't have properties in mind just yet. HELOC could be the way to go so that you have access to money quickly without paying the interest when its not being used.

Winston Covington · Answer

With today's low interest rates, I would go with a solid fixed rate 30 year loan.  HELOC's for the most part carry an adjustable rate and they will definitely go up in time. They are also for far shorter periods of time vs a 30 year loan.