HELOC OR Cash-Out Against Primary Residence For REI?

Question

Should I use a HELOC...OR...a cash-out refinance against my primary residence for the down payment of my first investment property?

Everyone always talks about getting a HELOC to fund an investment property, but I read an article that said that it makes more sense for homeowners who want to tap their equity to do a cash-out refinance because of how low rates are. The article said that HELOCs are floating-rate instruments, so they're less attractive to take on a floating-rate loan at a higher rate than a general low and a fixed rate.

My issue is that I don't want to pay $3,000 to do a cash-out refinance and I don't know how long it will take to get a deal (WHATEVER I define a DEAL as ;) ), but maybe I'm missing something here...

If you are approved for a HELOC and the value of your home goes down, will you still have access to all of the funds? (For example, you buy a home worth $150k. The value goes up to $200k and you've paid off about $20k of principal. You apply and are granted a HELOC for $50k. The value of the home goes down to $170k. Will you lose $30k of credit or will you still be able to have the $50k of credit?)

Brandon Plombon · Answer

Mike - Without knowing more financials on your current residence it is hard to tell you what you should do. If you haven't refinanced in the last 5 years or so you can probably save on your interest rate. It sounds like you don't want to spend the money on a cashout refinance without a deal lined up which makes sense as you will be paying interest on the money borrowed, whether or not you are fully utilizing the cash that you pulled out. To answer your HELOC question - the short answer is no you won't lose the $30K of available credit. The longer answer is maybe - when your line of credit renews in 12 months or whatever the term is and they ask to do a new appraisal on the property if it comes in lower than previously you could "lose out" on the availability of $30k of credit. Always read your loan documents to get the most accurate information.