Loan: What would be the best loan option?

Question

Help me figure this out. Back in 2021 when the rates were super low. I refinance my home at 2.1% for 30yrs. I started looking to invest right after (hence the reason why i wanted to lower my mortgage payment) and the broker is asking me to refi again with the VA Loan and pull out around 80-100k to invest.

My dilemma now is that the interest rates are way higher, although lower than my previous 4.5% from 2015.

Here is the question: Should i refi with VA and pull out the 100k at a higher rate than i currently have or should i get a separate loan (HELOC) for around 75k at around 6% interest for 15-20yrs?

Credit is close to 700s +-10

i have been trying to run every scenario and I'm coming up short.

Thank you

Jorge

Dave Skow · Answer

Jorge -   Do not  refinance the  2.1% rate .

what is the  broker asking you to  invest  in ?  ror?    would you be  looking to  invest  even if  Broker  wasn't  suggesting this ?

A heloc  is a  decent   option to access the  equity if  needed  but  count on this  rate being in the 5-7%  range  ( especially  after the  prime rate  increases soon)

Bob E. · Answer

@Jorge Mayol  I have to agree with @Dave Skow  you have a great rate at 2.1% and refinancing at a higher rate so soon will likely hurt you in the long run.  I would seriously consider keeping the 2.1% rate, if you refi you will paying the higher rate for the entire loan, not just the additional cash you pull out.

I agree that a HELOC looks like a better option for you, maybee look for a deal you can BRRR latter. a 30 year loan at

2.1% will cost you @$3.75 per thousand

4.5% will cost you @$5.07 per thousand

Those are big increases if you have a large loan balance.  Also keep in mind that with a 30 year loan you will not pay off much principle in the first 10 years, a 20 year loan will look much better after 10 years.

Nicole Heasley Beitenman · Answer

The HELOC is likely going to be the best route, but it's hard to say without knowing more about your analyses. While you're looking at your current situation, be sure that you don't step over dollars to chase down pennies. What kind of deal are you putting this cash into? What kind of income will that bring in?

I'm seeing SO many posts about "rising" rates. "Rates are 3.5% now but they were 3% before! Should I still invest!?" Folks are so worried about a $50-100 a month difference in payment instead of focusing on a deal that's going to bring in $800+ a month. When I started investing, rates were in the 5's. I still made money. I bet there are plenty of folks on here who started in the 80's when rates were in the teens; they still made money.

I'm not saying rates are irrelevant, but don't let them take your eyes off the long-term prize.

Scott Lamberty · Answer

Hey Jorge, I’d call my lendor Mike Johnson(c) 469-337-5728. He is ex-marine and takes care of a lot of military. He will crunch the numbers for you and walk you through it so you can understand it…You will understand it yourself before you make a decision. -Scott

Phillip Stevens · Answer

Also, it is important to know the balance of the mortage. If it was a large balance, I would not want to take a higher percentage. ie, $500K vs $180K...you are going to feel these differently if you do refinance out of the 2.1%

Phillip Stevens · Answer

You have to amortize both to see what’s going to cost more.  But I’d be inclined to say do the HELOC and keep that low rate.

Amir Guerami · Answer

Jorge-

Initially allow me to thank you for your service and sacrifices. Can you tell us a bit about the deal you are looking to get into and the relevant terms of it. It’s hard to analyze your refi without knowing the what the other opportunity is.

Tanner Cohen · Answer

Good Day Jorge,

My suggestion is to start with ordering a list of importance. What is most important to you right now and long term? If you can create a solution that aligns with both then great! But if you have to choose one or the other make sure you are clear on what is most important to you overall. Please also keep in the forefront of your mind what level of risk you are exposing yourself to and what your risk threshold is. Establishing a time horizon for your investments and goals will help point you in the direction of your true vision.

What I would do if I were in your situation is keep that 30-year loan @ 2.1% because that is a great rate and Iwill not get better than that in this market. Allow myself time to accrue more equity in my property and let the market appreciation do its thing. I would ask myself, does the HELOC move the needle for me now? If I'm coming up short on every scenario to make the investments happen now, then the best thing i could do is to hold tight. Whatever my income is, save as much as I can so that I can reach my goals when i am ready and not sacrificing what I don't have to.

But since you are here asking for more than just basic hold steady advice. I would reach out to friends and family to see who is interested and willing to invest with me. I will make sure to have a detailed proposal ready. See what I can create that route before extending to business persons that may be interested in partnering with me. I would look for partners who are willing to bring the majority of funds to the table and I will be responsible for deal sourcing and process. Utilizing OPM while I build my own bank roll before ultimately scaling out on my own if I see that being the best way for me to move forward with my real estate investing journey.

I wish you the best of luck and please don't feel like you need to make it all happen right now. You will have plenty of opportunity to make your moves what it is most advantageous to you.

Loan: What would be the best loan option?

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