Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
6y
Neither is better. It depends on how you intend to use it.
HELOCs are for short term debt. No closing costs, but also no fixed rate. And it's revolving debt, so you can pay it back ASAP and then draw on it again.
Cash out refinances are for long term debt. You're paying closing costs but getting a fixed rate. It's also a one-shot deal, you don't get to pay it back and reuse it, without another set of closing costs (eg, another refi).
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
6y
Neither is better. It depends on how you intend to use it.
HELOCs are for short term debt. No closing costs, but also no fixed rate. And it's revolving debt, so you can pay it back ASAP and then draw on it again.
Cash out refinances are for long term debt. You're paying closing costs but getting a fixed rate. It's also a one-shot deal, you don't get to pay it back and reuse it, without another set of closing costs (eg, another refi).
Rental Property Investor · Littleton, CO · Member since 2014 · 150 posts · 114 votes
6y
Any recommendations on who is doing HELOCs or Cash out refinance on investment properties? I am getting high rates for cash out and I can't find a lender to do a HELPOC if you have 4+ properties including your primary residence. I have one I'd love to do a cash out refinance, and another property I'd like to get a HELOC on.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
6y
@Mark Vannasdall 100% agree with @Chris Mason that there isn't a "right" or "wrong" answer but it certainly would depend on what fits you best. I personally like Lines of Credit (LOCs) because I don't pay interest on them unless I use them. A traditional cash out loan will have a fixed rate...and that's good too but those Lines of Credit I can use again and again. But I have to have a plan to pay them back.
Two of the common areas of concern for LOCs I see out there is the 10 year maturity date and the adjustable rate. Since LOCs have adjustable rates they will often catch people off guard when they adjust. With rates moving higher, it is likely that your rate will increase in the future. The 10 year maturity date is where the LOC will modify into a different product all together. Meaning after opening the LOC for 10 years it will cease to be a LOC. It will "mature" into a something like a 20 year fixed rate mortgage that you can no longer draw on. And when is matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.
So the item to understand here is that if you do use a Line of Credit - you MUST have a clear plan to pay it back. If you flip--you pay it back every time you sell a property. I hope all of this makes sense.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
6y
@Gretchen P. finding a lender that can write a Line of Credit on an investment property is pretty challenging. I'm not sure what you mean by "high rates" but investment properties always carry a higher rate than your primary home. If you wree expecting a rate like a primary home rate...that just won't be possible. Your Lines of Credit will also be a higher rate too...and even HIGHER than your 30 year fixed rate loans. I hope this makes sense how I am describing it. But if you do really want to explore the Line of Credit route then a small, local lender will be your HIGHEST probability of success when trying to find "Line of Credit" lenders on investment properties. The unfortunate thing here is that investment properties foreclose at a higher rate than primary homes so many banks just don't want the exposure to this. But it is 100% possible to find but you have to put in the time or at least know someone that ALREADY has the connection. Here's my 3 suggestions:
Post in the Bigger Pockets STATE forum that you are looking in. There are usually some good, local investors that monitor those forums. Maybe they already have a suggestion or recommendation for you? Certainly try there.
Visit your local REI groups. There are many groups that meet across the country. Some post here on Bigger Pockets. Many post on meetup.com. Networking is always a great practice and you never know who you might meet there and what good information they have to share. Would certainly recommend visiting if one is close to you.
Calling - and then there's this option. Which is what I had to do. I had to call about 200 lenders (no exaggeration) to learn of 4 lenders who did this and I have some tips. First, when calling banks target the smallest most community based banks you can first. If you have never heard of them, and they have one location - that's a good candidate. No big, national, publicly traded banks will do this loan type. Second, try to ask for "LINES OF CREDIT" instead of "HELOC". I know it sounds like I'm splitting hairs but some banks write HELOCs in their residential department....which won't write Investment Properties. And that residential department will often not speak to the commercial department. So they'll just say "sorry, we don't do it"....not even knowing that they really do! So if you ask for a "line of credit on an investment property" that should get you to the COMMERCIAL division. That's the section of the bank we want. Now, most of these smaller banks may only have 12 employees or so. So don't get frustrated if they don't return your call or aren't in the office. Just call back and be friendly. Maybe play dumb a little "I don't know if I'm in the right place..." "I'm sorry to disturb you, you may not be the right person for this....", etc. Maybe someone can get you to the right person. Again, be prepared to call A LOT.
The lowest rate I could find so far without points was 5.25, which seems high to me, with excellent credit, income, etc. I will follow your suggestions.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
6y
@Gretchen P. that rate seems reasonable to me. These types of loans are dependant on how much equity you have, so at 15% equity....5.25% would be very good! At 20% it would still be pretty good. At 25% maybe it's a little high...certainly depends on how MUCH you are borrowing as well. So a smaller loan amount might have a slightly higher rate. Hard to say without looking at ALL of your information but 5.25% seems at least within the ballpark for a 30 year fixed rate loan.
Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
6y
Mark - is the 100% owned condo the property you live in ? most heloc lenders want to see the property being your primary home .... more information is needed to answer your question more accurately ... if you plan to carry the debt created indefinitely or a long time - prob best to use a regular loan ...if you plan to payoff the debt soon - heloc might be better