Lending question: HELOC vs REFI?

Question

Hi all! I'm debating taking a HELOC out on my personal home, or doing a refi on an investment property. How to choose? Does it simply come down to which option gives me more cash at a more competitive lending rate? Or is there more that I need to consider?

(I did a refi on my primary back in 2020 and used that cash to buy my second STR, so I know the refi plan works well.)

Evan Polaski · Answer

@Brooke Morton, first you mention HELOC OR refi?  Is there a reason the two are exclusive options?

As others mentioned: HELOC is great when there is a clear exit to pay it off.  Flips are how I use my HELOC, primarily.  I use refi's on my rentals because: a) they are owned in LLC and I have yet to find a HELOC lender.  B) I tend to use that money for more long term investments, i.e. buy and hold rentals, even is BRRRR is a possibility.

Effectively, I try to tie my investment timelines to my loan products: HELOC is short term, so short term investments.  Buy and holds are long term, so long term loans/mortgages.

Dave Skow · Answer

@Brooke Morton- how  long   do you plan to  carry this  extra  debt ?   if you plan to  payoff the  HELOC  in a  rel;atively short term - use the heloc ....if you plan to  carry this  debt  for years - the   rental refinance  might be the  more  logical option

Steve Georges · Answer

Lots of good answers on this question here.  My instincts tell me that in this time of sweeping change in monetary policy, Evan Polaski's advice above is KEY for us all.  Matching the maturity of your Assets and Liabilities will go a long way to protect you from the wrong side of the "leverage sword."  With rates rising now, you don't want to be in a situation where your interest costs have risen to the point of eating all of your cash flow up, or worse.

Nick Barlow · Answer

@Brooke Morton what is the apr on the primary house from 2020? I refinanced my primary at 2.8% fixed for 30 yrs in 2021. You can’t find that anymore…I would HELOC rather than refi in my case if I wanted to tap equity…despite fees/HELOC interest. That’s just me.

If you’re not concerned with that, I would go with the refi (and would have said that prior to the rising rates environment…just not since ).

Good luck!

Jacob Trogan · Answer

Do both! Use the cash out refi money for anything you can’t pay back in a few months so maybe the purchase! Use HELOC for rehab funds on properties that you are planning to rehab, HELOC is variable so you don’t want to max it out and then have the rate climb and be caught with your pants down.

Erik Estrada · Answer

A great idea would be to consult with a local bank and a mortgage broker to compare costs. HELOC's could be a cheaper option in terms of closing costs, but you also need to consider how long you will keep the property for.

Kevin Luttrell · Answer

HELOCs are best used as short term financing. They're excellent tools for flipping and BRRRR when you need cash that you know you will be able to pay back within a short timeframe, so you can use it again for the next deal.

If you're looking for long term cash to buy a new property that you won't be able to pay back in the near future, I'd probably suggest refinancing instead since the interest rate is usually lower and will be fully amortizing.

Also depends on the numbers though, like what interest rate you currently have on your investment property vs what you're getting.

Garrett Terrell · Answer

One thing you have to consider with a HELOC is its usually interest only. So with using that money you'll have to make sure the property cashflows enough to make that HELOC payment and also have a exit plan for the HELOC funds and how to get it paid off.

I've had a lot of success with cash out refi'ing with local banks and credit unions, some of their portfolio products are better than fannie/freddie products and charge half the amount in fees.

Lending question: HELOC vs REFI?

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