Refi or Home Equity

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River SavaPro Member
Lender · USA · Member since 2022 · 1k+ posts · 1k+ votes
2y

Hi Carlos - 

With a HELOC you'll have lower closing costs being a plus in addition to flexibility as you can draw funds as needed and only pay interest on what you use. Though, keep in mind that HELOC rates can fluctuate with the market, potentially exposing you to higher interest rates down the line.

With a cash-out refinance, you'll typically have a fixed rate, providing stability/predictability in your monthly payments. While the closing costs may be higher than a HELOC, the long-term interest savings might outweigh this initial expense depedning on the property value, LTV, credit, etc.

Really depends on your strategy/perspective (short/long-term play, where rates are going, current fianncial position, etc).

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  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    2y

    @Carlos Oliva, I am not sure I am tracking your comment. Are you saying, you acquired the property in cash and funded the rehab with cash? So now you have a renovated property and are wondering if you should refi or take out HELOC?

    My personal opinion is: once the renovation is done, property is rented and generally stabilized, I take out a fixed rate mortgage. This locks in your monthly expenses, versus HELOC that is variable, and matches well to the long term hold of the rental.

    I use HELOCs for shorter term capital needs, i.e. flips, or even possibly the acquisition and renovation of a rental, but always with the belief that I will have it paid off in under a year, typically 6 months.  

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  • Greg Kasmer
    Rental Property Investor · Philadelphia, PA · Member since 2021 · 774 posts · 501 votes
    2y

    Carlos - I think this depends on your perspective of where rates are going to go. If you think rates will be consistent for the next couple of years and you'll have consistent deal flow to use the funds I would tend towards doing a cash-out refi on the existing property that you own free and clear. However, if you think rates will decline in the next 2-3 years and you're deal flow will be intermittent (i.e. 1-2 deals a year with some months without activity) I would lean more towards the HELOC as you only pay interest on the amount you access/withdraw. In either scenario you want to make sure you account for the "cost" of the money in your deal analysis so you account for your HELOC or mortgage payments.

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  • Alex Hunt
    Lender · Member since 2022 · 441 posts · 134 votes
    2y
    Quote from @Carlos Oliva:

    When starting out, but owning an entire property outright with added improvements, would it be better to cash-out refi or get a HELOC?

    Is it rented? If so cashout refinance. 
    it also depends on your goal and use of the funds 

    happy to help weigh through the options!
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  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    2y
    Quote from @Carlos Oliva:

    When starting out, but owning an entire property outright with added improvements, would it be better to cash-out refi or get a HELOC?


    HELOC= short term cash needs (that might be repeated)

    Cash out= long term cash needs 

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  • Jake BakerBusiness Member
    Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 695 votes
    2y

    @Carlos Oliva

    Cash-out Refi:

    Pros:
    Fixed interest rate - providing stability in your payments
    Lump sum payout - one-time lump sum, which can be beneficial if you have a specific investment or expense in mind.
    Lower interest rates - compared to HELOCs because they're first mortgages

    Cons:
    Closing costs - higher which can eat into your equity
    Resets mortgage term - If you've already paid down a significant portion of principal. Amortization starts over. 

    HELOC:

    Pros:
    Flexible borrowing - borrow as needed giving you flexibility
    Lower initial costs
    Variable interest rates - can be a con if rates rise, it can also be beneficial if rates decrease

    Cons:
    Variable interest rates - rate can fluctuate
    More risk of foreclosure - you're adding a second loan

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  • River SavaPro Member
    Lender · USA · Member since 2022 · 1k+ posts · 1k+ votes
    2y

    Hi Carlos - 

    With a HELOC you'll have lower closing costs being a plus in addition to flexibility as you can draw funds as needed and only pay interest on what you use. Though, keep in mind that HELOC rates can fluctuate with the market, potentially exposing you to higher interest rates down the line.

    With a cash-out refinance, you'll typically have a fixed rate, providing stability/predictability in your monthly payments. While the closing costs may be higher than a HELOC, the long-term interest savings might outweigh this initial expense depedning on the property value, LTV, credit, etc.

    Really depends on your strategy/perspective (short/long-term play, where rates are going, current fianncial position, etc).

    [email protected]
    3Reply
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