Money out refinance or a heloc?

Question

Getting ready to refinance my primary house was wondering what made more sense to take money out to have ready when the next deal is ready or just get a heloc and refinance keeping the current payment down until needed? If I took money out I would use it to pay the difference

Chris C. · Answer

House that wanting to refinance currently has 50k owed on it but by refinancing the interest rate is cut from 4% to closer to 2% so that's why I was thinking of doing the refinance

Joe Splitrock · Answer

If you take cash out, then you are paying interest to have money sit as you wait for a deal. If you use a HELOC, then the interest is deductible against the deal you use the funds on.

Andrew Postell · Answer

@Chris C. so I can't tell if your primary home has a current loan on it or not but let's assume for a moment it has no other loans - I would heavily consider a HELOC. Like 99% sure that it might be the right product. A HELOC acts like a credit card; you use it, you pay it back, you use it again, pay it back, etc. So when you flip, you use the HELOC to buy and rehab the property, sell the property, pay the LOC back, and do it again. I especially like HELOCs because I'm not paying interest on the property if I'm NOT using it. Meaning, if it takes you 9 months to find a home - that's 9 months that you would be paying interest on a traditional "cash out" mortgage. That's a big deterrent to me for a mortgage. And the closing costs would be SIGNIFICANTLY lower on a HELOC as compared to a mortgage.  Even if you were buying homes to keep or rent....you would buy those in cash, refinance them with a cash out loan, to pay back your HELOC.  Unless you were thinking of something else here, or if there IS a current mortgage on the property, I would seriously consider the HELOC route.

Cameron Tope · Answer

Hey Chris,

This is really a personal preference. If you use a HELOC, it will be a variable rate, but you won't have to make payments until you actually use the money. While for a refinance, you'll have all your money at a fixed rate, but you'll immediately start making payments on the funds.

If you know that you're going to be in acquisition mode for the next few years, then I would refi, but if you just want some funds to pick up a good deal or two that come across your desk, then I would stick with the HELOC.

Best of luck!