How does Refinancing work?

[Nicholas Minich]

I am gathering research in order to start investing in rental properties. I’m 22 and have saved plenty of money to start investing, but before I do I wanna be sure I know exactly what I’m doing. I see people talk about how they refinance their loans and I’m curious to how that all works.

[Jimmy Lieu]

Originally posted by @Steven Foster Wilson:

Originally posted by @Nicholas Minich:

I am gathering research in order to start investing in rental properties. I’m 22 and have saved plenty of money to start investing, but before I do I wanna be sure I know exactly what I’m doing. I see people talk about how they refinance their loans and I’m curious to how that all works.

Refinancing is the act of getting a new loan on an existing property. There are two primary refinances

#1 Refinance Term & rate: This means you are choosing a new loan with a new interest rate at a desired term (30 year). Lenders right now are usually going as high as 80% of appraised value.

#1 Refinance cash-out: This means you are choosing a new loan with a new interest rate at a desired term (30 year). Lenders right now are usually going as high as 70% of appraised value. The cash out part comes when you have a difference in equity.

Home appraised value: $100,000k

1st mortgage balance: $50,000k

Refinance mortgage: $70,000k

You get to keep the $20,000k cash difference 

Hey Steven!

If someone has equity in a property and wants to use it as a down payment for their next investment property, would you recommend a cash out refi or a HELOC?

I'm a bit confused on knowing when to differentiate between these two and knowing which one would be the better option. From other investors, I've heard HELOCs are better for BRRRRs and cash out refis are better for buy and holds. Would love to know what you think. Thanks!