HELOC or mortgage

4 Replies

Hi BP

I am stuck on a question. I have a rental property which is paid off and have equity. I am hoping to use that equity as a way to finance my deal. I am unable to decide if I should go for the line of credit or get a fixed loan for 30 years. Please advice.... 

If you get a HELOC then you can use and reuse it as many times as you have it available. Mine is for 10 years, which they will renew afterward.

If you just refinance, I assume that's what you mean when you say "mortgage", then it's that one time to pull out money. There is no reusing the money.

Think of HELOC as a "credit card" that allows you to pull money out of and pay it back, pull money out of, pay it back.

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Thanks for the input Daria B. and John Van Uytven. I was personally inclined towards HELOC, but interest rate is a little higher as the property is not owner occupied.

I would say get a fixed 30 for the mortgage for the investment property:

1. gives you stability in payments. Heloc's typically have payments based on the outstanding balance (1.5%) is common. This creates a large payment, and a changing payment

2. rates are LOW right now, lock them in! You can hedge the low rates now against 30 years of future economic unknowns. A heloc will have a variable interest rate, even if you get it now it may not always be useful to you

3. heloc's are harder to get against investment properties than they are against a primary. 

Get a 30yr fixed for the investment property and if you have equity in the primary you put a heloc on that.