HELOC or REFI???? What is best strategy??

[Monica Evans]

Hi Guys,

Question on HELOC's - is the goal to use one and then pay off after REFI? Or, do some people use them and just make monthly payments with cash flow of the property once it's rented out? I'm guessing that depends on people's specific situations and what makes sense for them, but any general guidance on this?? I don't really understand the benefit of using a HELOC if you're going to make monthly payments over time and end up paying a ton of interest on the equity in your home, but I'm admittedly not a very finance/business savvy person and maybe that is a better gig than paying closing costs to pull equity out on a refi as opposed to using the HELOC.

We currently have the option of refinancing our first rental property purchased in 2018 and pulling out 40K but the interest rate on the new loan would go from 5.25% to 5.5% and cash flow on the rental would go from $535/mo to $310/mo. Option #2 is we could get a HELOC on our primary home of $52K which we could use for the down payment of a second rental. What I'm confused on is if we use the HELOC for down payment and bank lends the rest to buy the home (assume $125K house), then we fix it up, would the strategy be to then refi the home and pull out equity to then hopefully pay off the HELOC?

Has anyone done that or do most folks make monthly payments on the HELOC with cash flow over time vs paying it off? Really curious as to how people are using HELOCs. Thanks so much for any input and guidance!!