Use a Home Equity Loan to Pay Off Newly Purchased Home?

Question

Hi all,

So, my situation is as follows. I currently own 1 condo, and recently purchased a duplex. Both properties are in Cleveland, Ohio. My condo is paid off in-full. It currently appraises for $63,000. I put 25% down on the duplex and currently have a mortgage of $57,000.

Would it make sense to get a home equity loan on the condo to pay off the mortgage on the duplex? Or, do you suggest I just continue to pay off the mortgage over the next 30 years with my regular monthly payments?

I plan to buy more properties in the future and could potentially take a home equity loan on the duplex.

Thanks very much for your thoughts and input.

Mike Dymski · Answer

Both loans calculate interest the exact same way (principal x rate x time).

Justin Frank · Answer

@Mike Dymski thanks 🙏

Don Petrasek · Answer

@Matt Lorenzo I can't think of any advantage of using an equity line on the condo to pay off a fixed rate mortgage on the duplex.  You're going to wind up trading a fixed rate for a variable rate (equity lines come with variable rates) on the money.  You're probably also going to find that you're going to be limited to 65%-70% LTV on the condo if you can find a lender who will do an investment condo.  I used to be a mortgage broker and advised people to take the long term fixed rate option.  You can always pay more and save yourself the interest (even on a fixed rate 30 yr mortgage you only pay interest for the time you have the $s outstanding).

If you have extra funds, you'll want to do the math and see if you can achieve a better return by paying off/down your mortgage or acquiring another property.

Mike Dymski · Answer

They are both daily.  Fraudsters use this noise to sell their scams.

Justin Frank · Answer

@Mike Dymski

You are correct. I am not in banking so I should not have made the comment in regards to one type of interest being better or worse than the other. With that being said I do believe that amortized interest and credit line interest are calculated a bit different (monthly vs daily). Either way,  @Matt Lorenzo look into using credit lines to paying down debt/amortized loans. Amortized interest is affordable but very expensive if held for the full amortization period. Velocity banking is an awesome tool to help pay down these amortized debts faster and to cut down on interest paid. There are lots of great videos on YouTube that you can find to explain amortization versus credit lines and using those credit lines to pay down amortized debt quickly. Mike Adams has a lot of great videos to watch. Bottom line, as @Mike Dymski pointed out I’m not a professional in this area. Watch the videos and decide for yourself if it will work for you.

Jacob Sampson · Answer

I wouldn't use it to pay off the duplex but I might use the cash to purchase more rentals.  There isn't really any significant advantage to transfer debt from one property to another when you already own both.

Justin Frank · Answer

@Matt Lorenzo,

The simple interest on a HELOC is much cheaper than the amortized interest on a 30 year note. Look into velocity banking as it may help you with your question in this forum. Velocity banking is a neat strategy however your expenses have to be dialed for it to work properly. It takes a bit to grasp the concept of velocity banking but once you do it is a great tool that can save you many of thousands in interest. We are about to implement this on a few of our rental properties.

Andrew Jenkins · Answer

@Matt Lorenzo I would likely cash out refi on the condo and use the proceeds to buy another property or 2 - just have to run numbers on cash flow with HOA fees.

I have investments in Cleveland Suburbs and I’m a real estate agent as well.

I also help people with even more passive real estate investing as well.

Just my 2 cents - happy to help!

Use a Home Equity Loan to Pay Off Newly Purchased Home?

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