HELOC vs Cash out Refinance

[Christian Scalla]

Hi everyone, What are the differences between HELOCs and Cash out Refinances? How can I do one of these strategies in a way that does not affect my personal debt to income ratio? LLC? Thanks!

[Peter Tverdov]

I prefer HELOCs to Cash Out almost every time and here is why:

-When you do a cash out, your mortgage increases and your cash flow on the property shrinks and your DTI ratio changes negatively. You can only use that money once per-se (unless you keep doing cash out refi's, which is possible)

-A HELOC the interest only shows up as a debt, so if you have a $50,000 HELOC for example. Your debt is interest only for 5-10 years typically and therefore it will show up as you owing $200-$300 instead of a much larger amount on a loan. PLUS, you can treat it as a CC, meaning if you pay it down early, you can use it again. Oh and your first mortgage amount doesn't change a bit, which allows you to maintain the cash flow on your property.

I personally will do HELOCs on as many properties as I can. I much prefer LOCs over cash outs, but cash outs do have a role (flips, commercial, etc).