Mortgage my residence to fund investment purchase?

Question

I currently own my personal residence outright, and am looking to purchase a $700k investment property and need a $300k loan. There are two options:

1. Take a commercial loan @ ~5% on the investment property

2. Do a cash-out refi of my personal residence @~3% and use that money

It seems like #2 is better since I save a significant amount of interest. But am I missing something that I should be considering? Thanks!

Mike McCarthy · Answer

I would definitely consider a HELOC on your personal residence. The closing costs are MUCH lower (sometimes in the neighborhood of $100), fewer hoops to jump through, and you're only paying interest on the money you're using. You can take 75-80% HELOC, and if you're only using 40%, that's all you're paying on.

Interest rates will be a bit higher and are variable... but if it were me, that’s probably the direction I’d go.

Chris R. · Answer

We did this and it's an easy way to raise $ for a down payment on an investment property. Careful of the interest rate however as some HELOC interest rates start low and change after a certain term.

Carl Fischer · Answer

@Carl Arft

I do #2 for the interest savings. Talk to accountant about new tax laws and SALT concerns. I believe since you are using it for business it should be fine and deductible state and fed tax returns should be looked at.

Mortgage my residence to fund investment purchase?

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