Should I do a Cash-out refinance or a Heloc

Akron, Ohio
Creative Real Estate Financing
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Should I do a Cash-out refinance or a Heloc

Cory Ray
Member since 2023 · 26 posts · 15 votes

Hi Everyone,

So I just recently decide to get into the investing game. My current home right now has about 30k worth of equity I can pull out. Ive talked to a lender to get cash out refinance loan written up so I can see the numbers. My current mortgage interest rate is 4.75 with a mortgage around $600 per month. The cash-out refinance loan would have an new interest rate of 7.625 with a new mortgage payment of $948.70 per month. Ive looked at the average rent median in my neighborhood for houses similar to mine and it looks like I should be able get about $1200 for it. Ive talked to a buddy of mine that is a real estate agent and he told me to do the cash-out refinance and ive talked to another buddy who's an investor and he told me to do a heloc now because of interest rates. So ive gotta alot of mixed answers on what i should do. 

So my question would be in my situation what would you guys do? 

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Scott E.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
3y

You have a 4.75% rate on your 1st?

Get the HELOC.

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  • Jenny D.Pro Member
    Rental Property Investor · Austin, TX · Member since 2014 · 40 posts · 11 votes
    3y

    @Cory Ray...

    I'm curious. Are you looking to relocate from your current home?

    0Reply
  • Daniel Miller
    Property Manager · Akron, OH · Member since 2022 · 7 posts · 1 vote
    3y

    If you're going to move forward with this, I'd do the HE Loan.  Fixed payment and when rates drop, you can always refinance the loan.  This also lets you keep the lower rate on your current mortgage vs. the cash out.

    That being said, I think $30K equity is a little light to borrow against to invest. I'd like to see you in a more favorable equity position if you're going to borrow against your home. It's likely you only get 70%-80% of your equity anyway. Personally, I'd save up some more cash to bring to the table (maybe you have, you just didn't mention it), and continue paying down the current mortgage so you can borrow a bigger chunk of equity. I'm a fan of being able to buy your first rental (all rentals really) in a strong equity position...I know I'm more conservative than many, but if you can't put 20%+ down and avoid PMI on an investment property, I wouldn't move forward. I'd want stronger cashflow and stronger equity position from day 1.

    1Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    3y

    You have a 4.75% rate on your 1st?

    Get the HELOC.

    2Reply
  • Devin PetersonBusiness Member
    Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 681 votes
    3y
    Quote from @Cory Ray:

    Hi Everyone,

    So I just recently decide to get into the investing game. My current home right now has about 30k worth of equity I can pull out. Ive talked to a lender to get cash out refinance loan written up so I can see the numbers. My current mortgage interest rate is 4.75 with a mortgage around $600 per month. The cash-out refinance loan would have an new interest rate of 7.625 with a new mortgage payment of $948.70 per month. Ive looked at the average rent median in my neighborhood for houses similar to mine and it looks like I should be able get about $1200 for it. Ive talked to a buddy of mine that is a real estate agent and he told me to do the cash-out refinance and ive talked to another buddy who's an investor and he told me to do a heloc now because of interest rates. So ive gotta alot of mixed answers on what i should do. 

    So my question would be in my situation what would you guys do? 


    No doubt the higher rate environment will almost double your payment when you pull out that remaining equity. However, some lenders and banks have a minimum draw amount at closing for HELOC and it's typically around $50,000. Considering you only have 30 to pull out and you'll have to pay for some closing costs, wondering how much you actually have at the end of the day out the door.

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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y

    a HELOC will be your best bet in this scenario if you qualify.

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  • Cory Ray
    OP
    Member since 2023 · 26 posts · 15 votes
    3y
    Quote from @Jenny D.:

    @Cory Ray...

    I'm curious. Are you looking to relocate from your current home?

    Yeah I was planning on renting my house and getting into a duplex hopefully 

    0Reply
  • Cory Ray
    OP
    Member since 2023 · 26 posts · 15 votes
    3y
    Quote from @Daniel Miller:

    If you're going to move forward with this, I'd do the HE Loan.  Fixed payment and when rates drop, you can always refinance the loan.  This also lets you keep the lower rate on your current mortgage vs. the cash out.

    That being said, I think $30K equity is a little light to borrow against to invest. I'd like to see you in a more favorable equity position if you're going to borrow against your home. It's likely you only get 70%-80% of your equity anyway. Personally, I'd save up some more cash to bring to the table (maybe you have, you just didn't mention it), and continue paying down the current mortgage so you can borrow a bigger chunk of equity. I'm a fan of being able to buy your first rental (all rentals really) in a strong equity position...I know I'm more conservative than many, but if you can't put 20%+ down and avoid PMI on an investment property, I wouldn't move forward. I'd want stronger cashflow and stronger equity position from day 1.

    Im current saving all the money I can. Thanks for the feed back. I'll keep this in mind moving forward 
    0Reply
  • Cory Ray
    OP
    Member since 2023 · 26 posts · 15 votes
    3y
    Quote from @Erik Estrada:

    a HELOC will be your best bet in this scenario if you qualify.


     That's what I was thinking but I had my lender and buddy saying cash out. I just wasn't sure 

    0Reply
  • Cory Ray
    OP
    Member since 2023 · 26 posts · 15 votes
    3y
    Quote from @Scott E.:

    You have a 4.75% rate on your 1st?

    Get the HELOC.

    Thanks thats what my other investment buddy said and kinda what I was thinking.
    1Reply
  • Cory Ray
    OP
    Member since 2023 · 26 posts · 15 votes
    3y
    Quote from @Devin Peterson:
    Quote from @Cory Ray:

    Hi Everyone,

    So I just recently decide to get into the investing game. My current home right now has about 30k worth of equity I can pull out. Ive talked to a lender to get cash out refinance loan written up so I can see the numbers. My current mortgage interest rate is 4.75 with a mortgage around $600 per month. The cash-out refinance loan would have an new interest rate of 7.625 with a new mortgage payment of $948.70 per month. Ive looked at the average rent median in my neighborhood for houses similar to mine and it looks like I should be able get about $1200 for it. Ive talked to a buddy of mine that is a real estate agent and he told me to do the cash-out refinance and ive talked to another buddy who's an investor and he told me to do a heloc now because of interest rates. So ive gotta alot of mixed answers on what i should do. 

    So my question would be in my situation what would you guys do? 


    No doubt the higher rate environment will almost double your payment when you pull out that remaining equity. However, some lenders and banks have a minimum draw amount at closing for HELOC and it's typically around $50,000. Considering you only have 30 to pull out and you'll have to pay for some closing costs, wondering how much you actually have at the end of the day out the door.

    I believe 35k. I didn't know most banks require 50k when pulling out. I appreciate that knowledge. I keep that in mind thanks 
    0Reply
  • Daniel Miller
    Property Manager · Akron, OH · Member since 2022 · 7 posts · 1 vote
    3y

    Hi All, follow-up for those that replied favoring the HELOC…why? I feel like the HE Loan is the way to go in this situation but happy to change my mind. Enlighten me…all things considered, why a HELOC instead of a HE Loan? Not trying to be confrontational, just trying to see what I'm missing. Thanks!

    0Reply
  • Cory Ray
    OP
    Member since 2023 · 26 posts · 15 votes
    3y
    Quote from @Daniel Miller:

    Hi All, follow-up for those that replied favoring the HELOC…why? I feel like the HE Loan is the way to go in this situation but happy to change my mind. Enlighten me…all things considered, why a HELOC instead of a HE Loan? Not trying to be confrontational, just trying to see what I'm missing. Thanks!


     Hey thanks for the feed back. I also that about going that route being the fixed rate and such. I just really don't know. What route to go lol 

    0Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    3y

    cashout refi is better bc is amortized over 30years and as long as you use the money that earns you more, then you are better off. Best of luck!

    0Reply
  • Shawn Krieger
    Member since 2019 · 151 posts · 20 votes
    3y

    nick from freemont

    0Reply
  • Cory Ray
    OP
    Member since 2023 · 26 posts · 15 votes
    3y
    Quote from @Melissa Nash:

    cashout refi is better bc is amortized over 30years and as long as you use the money that earns you more, then you are better off. Best of luck!

    So you think cash out is better. Even with the interest rate so high?
    0Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    3y
    Quote from @Cory Ray:
    Quote from @Melissa Nash:

    cashout refi is better bc is amortized over 30years and as long as you use the money that earns you more, then you are better off. Best of luck!

    So you think cash out is better. Even with the interest rate so high?

    Both are good, I personally like the idea of spreading it out over the loan terms.... but the math is the math, you have to make sure that the difference is made up with your new investment. 

    I do think there is a great benefit to a HELOC, if you have a crazy low interest rate on your house like 3-4% then I'd keep it and do the HELOC prob. So you are right there in the middle where both options work for you........


    0Reply
  • Cory Ray
    OP
    Member since 2023 · 26 posts · 15 votes
    3y
    Quote from @Melissa Nash:
    Quote from @Cory Ray:
    Quote from @Melissa Nash:

    cashout refi is better bc is amortized over 30years and as long as you use the money that earns you more, then you are better off. Best of luck!

    So you think cash out is better. Even with the interest rate so high?

    Both are good, I personally like the idea of spreading it out over the loan terms.... but the math is the math, you have to make sure that the difference is made up with your new investment. 

    I do think there is a great benefit to a HELOC, if you have a crazy low interest rate on your house like 3-4% then I'd keep it and do the HELOC prob. So you are right there in the middle where both options work for you........



     I appreciate your opinion. I may do a heloc for now and when interest rates go down a little do a cash out. I believe this kinda gives me the best of both worlds.

    0Reply
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