Which option works best ?

Question

I have a situation: I've been working with a bank to get a HELOC on my primary in order to purchase my next property. I didn't get the total amount that I asked for and I was quoted at 9.25. I reached out to another smaller lender who states they can get me the total amount i'm seeking with a lower rate. However, I would have to start the entire process again (sending documents, hard credit pull, etc...) for a few points. I plan on refinancing within a year, so would it be worth it ?

T.I.A.

Erwin McClain · Answer

Thanks @Parris Taylor I will take this information into consideration.

Erwin McClain · Answer

@Ken M.I'm buying it as a house hack.  I'll stay in the basement and rent the upper level

Matt Devincenzo · Answer

My preference would be on the maximum loan amount since a HELOC for investment should always be a shorter duration funding. If I'm paying 10% or 12% is somewhat irrelevant if I refi or sell within a year, but the ability to borrow $100K or $125K is much more significant since that extra 25% is my cushion for unforeseen expenses on a project. But also like was pointed out above, the real question is how much more? For an extra $5K on $100K I wouldn't bother, that doesn't move the needle on ability to do a specific project or not. My last HELOC was a 50% difference in the amount I could obtain, but came in at 12% since it is on an investment duplex. I gladly accepted the higher rate for the much higher loan amount.

Matt F. · Answer

If it were me, I would do it. Plans have a way of changing, and it's better to have lower carrying cost just in case.

Erwin McClain · Answer

Thanks @Ryan Spath, I was thinking along those lines but not as in depth.  Thanks for your input.

Michael Cadet · Answer

Also, the main reason I would advise against a HELOC is because it’s a variable-rate loan  meaning your rate (and monthly payment) can fluctuate over time.

If you want to eliminate that risk and have stability once you’re in the loan, I’d recommend going with a fixed-rate option instead. Since you already have a clear, identified use for the funds, it’s worth taking the extra time in processing to secure a fixed rate rather than a variable one.

Parris Taylor · Answer

@Erwin McClain If you’re planning to refinance within a year, I would avoid chasing a slightly lower rate.

If the first lender already approved and you can close fast, take it and get back to buying. Every week you delay for a better rate costs you potential deal flow and momentum.

That said, if the rate gap is more than 1% and the second lender can move quickly, it’s worth running the numbers. On a short-term hold, the real cost difference usually ends up being a few hundred bucks, which is not enough to justify losing time or another hard pull.

The tactical move: use the second lender’s quote as leverage. Send it to your current bank and ask them to match or waive fees. Sometimes they’ll bend if they sense competition.

Momentum compounds faster than interest savings. Get the capital, buy the asset, and let the refinance clean it up later.

Erwin McClain · Answer

Thanks @Matt F., my concerns are reinventing the wheel & too many unknown variables that may be out of my control.  I've lost too much money to take those unpredictable risk.

I appreciate your input, Thanks

Which option works best ?

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