Refi: 15yr vs 30yr; Cash vs HELOC

6 Replies

Hello All!

I'm needing some advice and I'm hoping to get several opinions/points of view with respect to 15yr vs 30yr and cash out refi vs HELOC on my primary residence and a decision that I'm trying to make which all ties in to my goal of investing in my first rental property.

Here are my numbers for my primary residence:

Purchase Price: $212,000 (2010 purchase)

Amount Owed: $284,898 (2019 cash out refi to pay of student debt and extra for investments)

Current Loan term length: 15 years (2020 refi to decrease interest rate)

Current interest rate: 2.375%

Estimated Home Value: $650,000+ (realtor suggested listing for $815,000)

Monthly P&I Payment: $1946

Current cash on hand for investment: $120,000

My consideration: I’m considering refinancing to a 30 year mortgage and doing a cash out that will bring my new monthly payment equal to that of my current monthly P&I. Here is what that would look like according to my lender:

Loan Amount: $450,000

Loan term length: 30 years

Interest Rate: 3.125%

Monthly P&I Payment: $1928

Cash out: $165,102

Here are some of the questions I’m asking myself:

Am I making a bad decision to change from 15yr to 30yr?

Should I take out more than

Should I keep at 15yr and just do a HELOC?

Should I refi for a 30yr and take cash out like I’ve proposed above?

Will my debt to income ratio be an issue if getting a loan for an investment property?

Should I refi for 30 year and do a HELOC instead of cash out? (This way I can have lower payments and I don't increase my debt any more which would give me a more favorable debt to income ratio.)

Primary goal: To purchase my first investment property, preferably a multi family home, within the next 12 months.

More details: My wife and I currently reside in the Boise, ID area and the market is crazy here (see my purchase price and current home value as an example) so finding a good deal around here is very hard. Over the past 18 months we have been learning about/researching real estate and have been looking for deals for the past several months. We are open to long term real estate investing, but we would need to research more and become confident in a specific area prior to doing so. Seeing that we already have $120K on hand (it’s sitting in stocks which we grew from the $70K from our 2019 cash out), I’m not sure that having the additional $165K on hand is completely necessary. There is a large possibility we might want to sell our home within the next year for a very large profit, but doing so would put us in the very tough position of finding an affordable home (less than $350K) here in the Boise area.

Any advice I could get, particularly pertaining to the questions I’m asking myself, would be so much appreciated.

@Aaron Akins

First off congrats on how much equity you have in your home from buying in a great area.

If your ultimate goal is to invest in real estate I would definitely be refinancing into a 30 year mortgage. That gives you so much options  

  1. -Cash-out refi with $165k to pull out and that would keep your mortgage payment the same as is now. 
  • - refinance into a 30 year then take a HELOC out. Which would most likely lower your monthly payment if it's interest only payments ( which would be your best option to keep your DTI low to qualify for a traditional loan).

  1. If you are worried about your DTI then I would get the HELOC it looks better on your balance sheet when getting a loan. I highly recommend you refinance into a 30 year loan and access some of that equity to build a real estate portfolio. With $285k you will be able to scale much faster than with just having $120k (obviously if you do it right).

  2. Good Luck; your in a great position right now and being here on BP will only help.

It depends what you're going to do with that money from the cash out/refi...

If you go with a HELOC, it is likely variable rate. I suspect we are going into high inflation environment with rising rates so it will likely go up over time. HELOC's are also more likely to be called due by the bank.

For these two reasons, I only use a HELOC for short term funds, 6-12 months, typically to fund a BRRRR and then I refi and pay it back. That limits my exposure and risk. HELOCs are advantageous for this reason, because if you do a cash out refinance you're paying interest on that money all the time instead of on the occasion when you use it. If you want to use that money to invest in another property and the money will stay tied up in that property, then do a cash out refinance.

@Ryan Howell - although people have been predicting high inflation since the '08 bailout and stimulus....13 years later the same calls are being made.  @Allen McGlashing but I agree, I only use my HELOC for very short term situations. I want to know that I am going to get that money back. HELOCs are very useful but they are not the right tool for every scenario. As far as 15 vs 30, you'll hear arguments for both sides. Depends on you and your plans. With 15 it's paid off faster and some use that as a plan for retirement. After 15 years, no mortgage and 100% cashflow (well, minus taxes, insurance and expenses). But it also puts you more at risk on a monthly basis as you need to cover a higher monthly mortgage payment. Lose your tenant and now they're no longer paying your mortgage...that high monthly payment is coming out of YOUR pocket. This recent eviction moratorium a lot of landlords had to deal with was especially tough on those with 15 year mortgages. I prefer 30 year mortgages. That gives you the most flexibility. Low payments when you need them or when you can afford it and if you want to, make one extra payment per year and it brings you down to a 23 year mortgage. Then you're splitting the difference but it keeps you in a safer position.

@Allen McGlashing

I appreciate your input; I'll likely go with a 30 year and take cash out around $165K. I just need to find some deals to invest this cash in. Leaving it in a savings account is NOT an option. 

Thanks for the compliment on the equity; I will say that it happened by chance. Buying a foreclosure during a recession didn't hurt my chances!

@Salvatore Lentini

I've always been proud of the thought that I'd have my primary residence paid of before the age of 45, but then I refinanced at the age of 35, which pushed that pay off to 50 years of age. But with that cash out refi at the age of 35 I began to see how beneficial the equity in my home really is to me from an investment standpoint. So I suppose with that realization, I need to accept that doing another cash out and opting for a 30 year mortgage (thus more affordable payments) is the right direction to go. I appreciate your feedback.