Cashout Refi vs Home Equity Loan

[Gabriel Garces]

Hello BP,

I am a beginner investor and I need advice on getting money out of my investment property. 

I am fortunate that my father gifted me a single family house that I currently rent out. This house is currently worth around $150,000. I wish to take out a $100,000 loan against this property and use that money as a down payment for three other houses. 

Now I spoke to a lender and he said he is willing to do a Cash-out Refinance for a fixed rate of 4.5 % for 30 years. However, I have had other people including my father and other bankers tell me that a Home Equity Loan would be better? I was wondering if someone could tell me the big difference the two and what would actually be more beneficial for me. Is it true that with a cash-out refinance that the rate stays locked for full term, while a home equity loan does not? And l I plan to hold on to these properties for at least 10 years or longer, seeing how I am only 23. Also besides a change in rate, would anything change if I decided to live in the house? Thanks in advance.

[Steven Kleppin]

Let's be clear that @Gabriel Garces is talking about a Home Equity LOAN not a line of credit. You can usually get a home equity LOAN at a fixed rate from my understanding. There's also a big difference in eligibility from what I understand. You are only qualified for a Home Equity Loan or LOC if the property is your primary residence (from what I understand). Therefore, you're actually only eligible for the cash-out refi. This is because banks view an investment property differently than a primary residence. Someone is less likely to miss a payment on their primary residence when compared to an investment property.

I'm sure someone else will chime in if I'm wrong...