Need Advice: Loan Program Decisions

[Katrina Edwards]

Hi everyone.  I've been lurking somewhat and responding to questions within my area of expertise for about a month now, but this is my first post.

I'm planning to refi a duplex that I own.  Plan is to hold long term.  It's a rental. 

LTV is approximately 63% $475k loan, value around $750k

Decent cash flow

Couple of capital projects coming up in the next 2-5 years totalling about $25k

Here are my options:

1.  30year fixed at 4.125% - principal & interest payments

2. 1st position HELOC tied to prime less 1%, adjusts when prime adjusts, can lock the rate sheet of the day (at any time) to a 5, 7, 10 ARM at 5 year treasury swap (H.15) rates plus 2.25 or 2.625 - minimum interest only payments due during first 10 years (I would continue to pay down principal). Can continue to draw down on available credit when needed for first 10 years.

3. 1st position HELOC fixed for 7 years at 3.35%, interest only due first 10 years, can draw down on credit line when available and needed first 10 years.

All of the loans listed above would cost me about $3k in closing costs (appraisal, title, escrow) and payback from a cash flow basis would be 7-8 months.

Thoughts on where prime is going in the next year or more?

Thoughts on locking rates versus rolling the dice (ARMs have been good to me for the last few years)?

I'd like to hear what you think. Pros/cons/forecasts/fears/warnings etc.

Thanks in advance!