Updated over 3 years ago on . Most recent reply
Home equity line of credit: HELP!
My husband and I are looking at pulling money out of our home with a HELOC to fund the down payment on a STR. I am very confused and could use some help understanding fully. **I am going to use simple numbers but ones that are close to what we are looking at.
We owe $100,000 on our primary residence (at 4% interest) . It is currently worth about $300,000. We were hoping to get a line of credit available to us for $100,000.
Our current mortgage payment (principal & interest only) is around $600, the new payment (p&i) that the bank is proposing is $1100 at 6.5% interest. (When we initially spoke with them we were told they could give us an interest rate around the 4% that we currently have we were not expecting 6.5%)
When we are refinancing are we now financing the total amount that the home is worth ($300,000) and not what we owe currently? Is that why our P&I payment is almost double? I thought that we would still be financing the $100,000 that we currently owe with a lien on the property? I was expecting a p&i payment close to what we are currently paying and not double what we are paying?
Most Popular Reply
Hello. if you take out a heloc, it is separate from your current mortgage. The heloc is a 2nd position lein. With a heloc you only make interest only payments for a set period of time usually 10 years. Then start paying back the principle. You only pay interest on the money you spend. So lets say you take out a heloc of 100k and you only spend 25k. your only going to pay interest on the 25k. It would be ideal if you could use the money to get into a deal then take the money back out of the deal and pay back the heloc and either keep or sell the asset. At the end of your post it seem like youre refering to a cash out refinance. A cash out refinance resets the term of your mortgage, which is why they are telling you there is a new interest rate. Im planning on using my heloc to apply the brrrr method, or flip to build more capital. I hope this helped. Have a great day.