Heloc or Cash Out Refi?

Question

SFRental - has a 220-230k value

Current mortgage balance is 149k, with a 30 yr, 2.85% interest.I put about 15K down payment and closing, house hacked for one year.

I need access to money, to invest in other deals.  I am now trying to decide if to do a Heloc with my property management company (they take about a week to approve) or cashout refi with a bank. When do you consider one over the other?

Steven Foster Wilson · Answer

Defiantly a HELOC!

Scott E. · Answer

The right choice for you is absolutely to get the HELOC.

You have a $149k 1st mortgage locked in at 2.85% fixed. That might be the cheapest money you ever get. Hang onto that loan, and use the HELOC to tap into your equity.

JayCinta Henry · Answer

Thanx for the clarification, Everything makes sense now. Am callousing at 405$ pm and I definitely would rather hang on the cheap rate I have currently.

Andrew Moore · Answer

Piggy backing off of a few concepts discussed above.

Nice thing about HELOC is that your payment is usually determined by the amount of money that you use throughout the draw period. So you get the HELOC but you don't get another property for 6 months, your holding costs for that 6 months will be much less than doing a refinance.

Refinancing is more of a longer term solution because you are essentially locking in that payment (regardless of the new investment) probably 30 days after you close the refi until you can refinance or make a large payment & recast your loan. Does the cashflow of investment #1 cover the increase in monthly payment you would have with an increased loan amount and interest rate? I don't exactly know what you got it for, but your P&I is probably $600-$700/month +/-. I don't exactly know what your interest rate would be, but @ 5.75% & $176k (80% LTV @ $220k) you'd be at ~$1,000/month for P&I.

With rates on the rise, and variable nature of a lot of HELOCs, there is certainly some risk over the long run that route you will have to weigh against the upside potential.

One benefit of a HELOC from an administrative standpoint would be to minimize/eliminate the comingling of funds from the operations of each property. You could have separate accounts that operate separate assets. This would allow you to make payments to the HELOC directly from the new investment (cash flow/refinance/etc.). Could help keep things clean on from a bookkeeping/administrative aspect.

Kerry Baird · Answer

When to use one over the other?  When I need short term money I like a HELOC, when I want a long term, stable payment I want a cash out refi.  Even with 30 year mortgages, I tend to pull cash out periodically.

Bud Gaffney · Answer

HELOC

Ryan Howell · Answer

Agreed with  @Drew Sygit.  It depends on your plan.  If you are doing a BRRRR for example with intent to pay that capital back to yourself and repeat the process, a HELOC is best because you're only paying interest when you're using it.  If you plan to buy a turn key rental and use the money as your down payment, then I would refinance so you don't get stuck with variable interest in this environment of rising rates.

Drew Sygit · Answer

@JayCinta Henry how long will you need the money?

All comes down to cost of funds.

If you plan to use the money indefinitely, than a refi may be better given that rates will be increasing.

If short-term, then risking rising interest rates on a HELOC may be better.

Heloc or Cash Out Refi?

Most Popular Reply