Cashout Refi vs HELOC

5 Replies

Long story short:

Wife and I need to refi our primary residence to take her ex-husband off of mortgage and put my name on there.

Looking to tap into the home’s equity in the process to fund our first deal.

Is it smarter to:

Do a Cashout Refi

or

Refi and open HELOC

Thanks for your time.

@Robert Molloy I think doing a cash out versus a HELOC depends on when you need to use the money.

If you plan on using it in the very near future, then pulling the funds out through a cash-out refi may be the best option as you'll get a lower interest rate for all the funds.  The down side is you will need to start repaying it right away.

With the HELOC you won't need to make payments unless you withdraw from the HELOC and they are usually only interest payments during the withdraw period. The downside is the interest rates are higher for the HELOC.

Good luck!

I'm a big fan of a HELOC because of the flexibility to pay down and draw on it as needed. The downside is a variable rate.

I'd advocate for the cash out refinance to save yourself the closing costs and get on a fixed interest rate. Depending on your current rate and how much you're looking to take out, you may even be able to lower your rate with as low as rates are right now

The flexible nature of the HELOC is something you will pay for. Some people can justify paying for the flexibility while others can't. It's very situational. Do your math and see what it could cost you and then make a decision. A lot of questions on this forum come down to the math. What does the math tell you? Due to the variable nature of a HELOC you have to make some guesses, and that is one thing many people don't like about them. You're always managing a HELOC, a 1st mortgage is done and over with. Balancing all the numbers and doing the math can be a bit daunting for some people but the math is a fundamental component of investing in anything and without knowing it people just stumble around blind.

Ultimately you have to decide what is more important to you. Being able to draw up, pay down, and use the HELOC again? Or setting it and forgetting it with a low interest rate you know is a certainty?

Back to the original post, do you need funds to reimburse the ex? If not, then perhaps no action is required other than getting a quit claim from him.