BRRRR and Refi - Why are Mortgage Brokers skeptical?

Question

Please. Any help or advice is appreciated.

We bought a home in Boca,FL October 2020.

Purchase about $950k

20% down

30 year fixed around 3%

At time of sale it bank appraised for $1.1M

We’ve put in all new floors, tore out and redid kitchen among other things.

About to hit 6 month mark and we’re told that’s when we can refi- hoping to recoup close to our down payment.

But now our mortgage broker is talking about HELOC and second mortgages and such? Like they think we’re crazy for wanting to refi? Are the rates that different now? Can someone please chime in. What is the right call here? I thought it was refi?

Thanks. First BRRRR

Mitch Polatin · Answer

@Mitch Polatin

With rates going up, seems a HELOC might be our best best otherwise we risk losing our 30-year rate at 3% for a jumbo.

So much to figure out.

Mitch Polatin · Answer

@Zach Westerfield

Thank you. This is what I have read about and it seems to make the most sense to me. You provided a great explanation.

Zach Westerfield · Answer

@Mitch Polatin it depends on what you plan on doing with the money. There are pros and cons either way. Both usually require 75% equity or better in the property.

With a line of credit

1. you are more flexible, and dont pay interest if you arent using the money

2. usually pay less fees up front

3. usually get processed faster

4. can usually get interest only payments

Cons

1. they usually have floating interest rates

2. technically the bank can take the money back if something happens and the money is in your account, such as a market collapse

3. they usually are on 3-5 year terms, so you need a plan to pay them back by then

For a Refi

1. we have record low interest rates right now, you can borrow money and lock that in for the next 15-30 years.

2. repayment terms are spread over 15-30 years

3. fixed interest rates

cons

1. higher closing costs up front

2. you are always paying interest on the money

a lot depends on outside factors. I had trouble finding banks that would give me a line of credit on my investment properties, since they were not in first position and I live in another state. However, when interest rates sank, I did a cash out refi. Since my rate lowered 150 basis points or more, i was able to take cash out and my monthly payments barely changed (went up $90/mo between 2 properties)