First-time homeowner and BRRR. I have owned my duplex for 18 months now. One unit is renovated and rented, and I occupy the other unit. I have significant equity in the home because of a large down payment. I am looking to get that money out to do renovations on the unit I occupy, as well as invest in another multi-family property. I have cash reserves for the renovations, but I don't want to run them dry. I am currently applying for a HELOC because I don't know if a cash-out refi makes sense with the current prime rates (my mortgage is locked in at 3.25% and I don't know if it's worth refinancing at a much higher rate.) Does it make sense to do a HELOC in this scenario? And if rates go down and I want to do a cash-out refi later, will I have to pay back the HELOC in full first before I can do so? Or can I pay back the HELOC with the cash-out refi money directly after?
Real Estate Agent · Seattle, WA · Member since 2017 · 150 posts · 80 votes
3y
What others have mentioned. 3% interest rate is something we might not see again for a very long time. Utilize a HELOC to keep your current interest rate and get a loan on your equity instead.
Lender · Charlotte, NC · Member since 2020 · 224 posts · 221 votes
3y
Hey Brandon,
I would not do a cash out refinance right now with rates being the way they are. I would only consider cash-flowing the renovation out of pocket and it may take a month or 2 longer, but a HELOC can be dangerous depending on how much renovation you do. However, if you need financing for the renovation, then your best options are to do a fixed rate equity loan or HELOC.
If rates drop in the future, you can do a cash out refinance and decide if you want to subordinate the HELOC or pay it off entirely with the cash-out proceeds. Most people just pay it off with a cash-out refi because it's a variable rate, and it's less hassle.
I would not do a cash out refinance right now with rates being the way they are. I would only consider cash-flowing the renovation out of pocket and it may take a month or 2 longer, but a HELOC can be dangerous depending on how much renovation you do. However, if you need financing for the renovation, then your best options are to do a fixed rate equity loan or HELOC.
If rates drop in the future, you can do a cash out refinance and decide if you want to subordinate the HELOC or pay it off entirely with the cash-out proceeds. Most people just pay it off with a cash-out refi because it's a variable rate, and it's less hassle.
Great Question!
What makes the HELOC dangerous? Is it because it's being used for a renovation? What if I'm using the HELOC to put a down payment on another investment property? Is that "dangerous"?
What are the benefits of a fixed rate equity loan vs a HELOC? What if my HELOC is a fixed rate?
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
3y
Chiming in that it is "dangerous" because the rates are variable, and some lenders did "cash calls" in the dreary parts of the last housing cycle. A fellow investor friend of mine has had her investment HELOC truncated, meaning the line available to her was reduced.
Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
3y
@Brandon Larson- HELOC makes the most sense ..if you use it - try to make payments that are larger than the interest only payments that are required ....and yes if you want to do a refinance later - the HELOC will need to be paid off and closed ( there is a possibility that the HELOC could be subordinated but this is unlikely)
Real Estate Agent · Seattle, WA · Member since 2017 · 150 posts · 80 votes
3y
What others have mentioned. 3% interest rate is something we might not see again for a very long time. Utilize a HELOC to keep your current interest rate and get a loan on your equity instead.