Should I refi? All details included

[Dakota Cochran]

Hi bp family, I have got my numbers sorted out and clear to close. I wanted to take advantage of lower rates during the pandemic but wasn’t able to until recently due to proof income (1099)
I’m cleared to close and feel comfortable but still want some people to poke wholes if possible. I’m the first in my family to own a home and want to own Real estate so I don’t have anyone to help guide. 

House is 2/1 in largo Florida
Current loan: 

I bought the house for 160k. I owe 150k , It’s at  6.25% interest,  house appraised at 278k last week

new loan:  200k at 5.75% interest, would give me 38k cash back 

My current payment is set to 1500 a month some applied to principle. The new loan would be just under 1500 a month with t&a

I plan on putting another bedroom on (at cost) me and family are contractors and then holding the rest (with other savings) for hopefully an opportunity to come up where I can buy an investment property.

my thought on this was to not max leverage my current house but give a little cash boost well also allowing room for the current market to cool down. Please any advice  or ideas are welcome thank you!!

[Corby Goade]

Congrats on the purchase and your equity!

I don't recommend cash out refis as investment vehicles for new investors. The fact that you are paying interest on the cash from day one without any specific plan to use it, combined with the fact that most new investors suffer from analysis paralysis- that money can be very expensive in the long run. 

I'd suggest you explore a HELOC. You can typically get a higher LTV and pay no closing costs. In addition, you don't pay anything until you actually use it. Yes, generally the rates on HELOCS are a bit higher than a conventional mortgage and they are variable, but if you have a solid exit strategy on your new investment and buy right, you should be able to cash out and pay it off in less than a year. Over time, it's much more likely to be less expensive and it will definitely be less stressful.

Best of luck!