HELOC - INTEREST ONLY

10 Replies

I'm trying to wrap my head around whether a HELOC is a good idea for an investment property. I applied for a HELOC and got a "counter offer" for a HELOC - Interest Only. Is this a good strategy to use for making down payments on rentals? I've only done cash out refis in the past, which are expensive upfront with closing costs, and I can't keep "refilling" the money available like a heloc, but seem much more straightforward.

Should I keep trying for a HELOC that is not Interest Only?

Here are the terms offered to me:

ELOC not to exceed $ 77,800 at 6% APR. This is a variable rate that will change quarterly based on prime plus 0.5%. The minimum monthly payment will be the finance charges due.

Interest only.
15 yr term, then Principal balloon payment of any balance, If you just pay minimum. Can refinance at that point.

Originally posted by @Gerald Pitts :

I'm trying to wrap my head around whether a HELOC is a good idea for an investment property. I applied for a HELOC and got a "counter offer" for a HELOC - Interest Only. Is this a good strategy to use for making down payments on rentals? I've only done cash out refis in the past, which are expensive upfront with closing costs, and I can't keep "refilling" the money available like a heloc, but seem much more straightforward.

Should I keep trying for a HELOC that is not Interest Only?

Here are the terms offered to me:

ELOC not to exceed $ 77,800 at 6% APR. This is a variable rate that will change quarterly based on prime plus 0.5%. The minimum monthly payment will be the finance charges due.

Interest only.
15 yr term, then Principal balloon payment of any balance, If you just pay minimum. Can refinance at that point.

In my opinion HELOC's are only good for short term financing, 6 to 12 months then pay it off and repeat. If you plan on keeping it for longer than 12 months you might as well do a cash out refinance. Yes, a refinance has fees, but it doesn't have a balloon payment. It also has lower rates and a predictable payment each month. This why long term it's best to use a cash out.

Just my 2 cents.

Take care and have a great day.

Originally posted by @Gerald Pitts :

@Shaun Weekes

Thank you!  I do rest a little easier with the refi.  Another temptation of heloc is 90% ltv.

You can get 90% cash out with a 1st and 2nd mortgage that is fixed with a principal and interest payment.

It's important that you align yourself with likeminded professionals. Loan Officers, Brokers, Realtors, Contractors, Property Manager etc. When you build a team of likeminded individuals ( RE investing via investment properties ) it's easier to make this type of decision because they have seen the pro's and con's and can give you the information needed for you to make an educated and informed decision.

Contemplating similar situation here on HELOC vs. 1st mortgage refi. @Gerald Pitts I'm local to you in Franklin/Cool Springs!

What about HELOAN (as a fixed 2nd) vs. full refi? HELOC (credit) seem to always be discussed but not the straight equity loan variant.  Any experiences on adding a 2nd vs. refi?

on my first rental.  Fixed rate, but the rate was a little higher at 5.75.  I didn't know much about cashout refi at the time.  I would probably opt for the refi over the HELOAN today due to the lower rate.  If anything, the HELOAN closing costs were a lot lower, but that was it.  

I use a HELOC as an operating account and hold all my income and savings in it.. then disperse funds from it. By holding your income in the HELOC, it reduces the daily balance, which recalculates the "interest only" amount.. It's the most efficient way any way you look at it.. It's a 1st position, so I have no mortgage. I plan on using 35k for a down-payment on a triplex next month.. No closing costs either :)

@Adam Edwards , Thank you. I have seen this talked about a lot. And recently heard about a HELOC all in one. It's a checking account, a fixed rate long term mortgage, and a HELOC all together. Is that what you have?

Essentially.. my wife and I hold 100% of our income in the HELOC and pay our expenses from it.. you must be positive cashflow monthly for it to work. Interest only that decreases each month by driving down the principal :) and you're equity is liquid for whatever you want ( I only use it for assets:)

Essentially.. my wife and I hold 100% of our income in the HELOC and pay our expenses from it.. you must be positive cashflow monthly for it to work. Interest only that decreases each month by driving down the principal :) and you're equity is liquid for whatever you want ( I only use it for assets:)