Fixed or HELOC on primary residence?

3 Replies

I'm looking to squeeze a little cash out of my primary home for the purposes of purchasing another multifamily property soon.  I've been down the road of having a fixed home equity loan before, and I currently have one on my primary home.  I've never had a HELCO before, but I'm well aware of the differences and what to expect with rates down the line.

From a strategy standpoint, I'm trying to see why one would be better over the other. If I get the HELOC, it will have a balance already from my current 2nd mortgage, but I will still have credit left over. I like that as I pay it off, I have more available to use for a purchase, versus the fixed provides me zero benefit as I pay it off (except home equity again). I could then rinse, wash, repeat with the HELOC. Even as rates go up, we are still historically low and I have no problem paying a higher rate for these amounts.... and they would be part of my short term strategy to pay back quickly.

I can get the same CLTV on a fixed vs HELOC currently from a local credit union, so the cash would be the same.

What am I missing here that would make the HELCO not the best decision? 

You aren't missing anything. The HELOC gives you the flexibility to recycle money. If you don't utilize it for longer term financing, your hitting it right. It isn't about flipping houses or adding units. It is all about flipping money. Compounding out your investment and using the returns to generate more income that can in turn be reinvested. I continually have a HELOC out on my personal residence that gets deployed, returned, etc. It is a great option to have at your disposal.

Another benefit of the HELOC is that you only pay interest on the money you're actually using.

If you have a HELOC for $100k but only use $20k then you're only paying interest in the $20k.

You are spot on. The main thing is how you want to implement it into your strategy. The "rinse and repeat" works best with the HELOC. You can consistently flip that money based off as many deals as you can find within that period before it balloons up. I plan to do the same thing once I build enough equity in all my properties. But if the right deal comes before then, Ill cash out them all at the same time at that time and get a multi-family that way.