HELOC rate/term comparison

[Alipate Moleni]

I need to choose between 2 HELOC offers, one with Penfed, the other with Zions bank. Penfed is offering me 115k, variable prime + 1.5% rate, no closing costs. Zions is offering me 100k, variable prime + .94%, about $2k closing costs. Both are 10 yr draw period (interest only payments), 20 yr payback. I plan on using the HELOC for BRRRR.

I need to make a decision soon. Lmk what you think I should choose and why. Thanks!

[Timothy Lewis]

@Alipate Moleni are there any draw fees associated with using the HELOC? That should also factor into your analysis as well as the minimum permitted draw amount. Between the two, it really depends on how much volume you plan to do over the course of your HELOC and what hold periods you'll have before refinancing them.

Assuming you use only usually $100K on each loan, and on average have you funds drawn for 6 months until you refinance, you would pay about $250 more in interest using the prime+1.5% loan. However, you'd have to BRRRR 8 homes before you reach the closing costs you pay on day one with the prime+.94% loan. Though I'm predisposed to lower rates, I lean away from paying upfront costs. In this case variable prime+1.5% looks better unless you expect to do many more homes and your average hold period is longer. Plus you have another $15k to work with!

Any draw or other fees you haven't mentioned could change the outlook. Good luck.