Cash out or Heloc on our rental prop?

[Bridget Ariel]

My husband and I bought our first home 1 year ago for 1M with about 230k down at 2.9 interest. Our payments including property insurance, interest, etc is about 4,333.00. The house has a detached 1 bedroom "Rec" room where my husband, son and I live. The main house is a 3 bedroom house we rent to a wonderful tenant for $3,700. She's an A+++ tenant...always on time with her payments, has lots of reserves, and she was at her last place for 32 years. Our son needs his own room and we've outgrown the 1 bedroom rec room. We are looking into building a second bedroom for the rec room so we can stay there and continue get the rental income. Our appraisal came in at 1.15M. The new rates came in as follows if we borrowed cash. I am so confused and no nothing about this and if we should move forward or borrow the money for the second bedroom another way. 

Loan Amount: $862,500 / 30 year fixed / 75% LTV

Rate:	3.50%
Cost:	.25/$2,156.25
Principal and Interest:	$3,563.17

Rate:	3.625%
Rebate	.125/ $1,078.12
Principal and Interest:	$3,933.44

Rate:	3.75%
Rebate	.50/$4,312.50
Principal and Interest:	$3,994.37

Loan Amount $920,000 / 30 year fixed / 80% LTV

Rate:	3.75%
Cost:	.25/ $2300
Principal and Interest:	$4,260.66

Rate:	3.625%
Cost:	.37/$3,404
Principal and Interest:	$4,195.67

Rate:	3.50%
Cost:	.50/$4,600
Principal and Interest:	$4,131.21