To HELOC or Not To HELOC

[Mario Morales]

I'm looking to pull equity from a property, but I have a great interest rate that I don't want to lose. My thought is to use a HELOC for the down payment on a new property (20% down), then once I acquire it, do a cash-out refinance to pay off the HELOC while keeping my original low rate intact. Does this strategy make sense, or am I overlooking any potential pitfalls?

[Robert Rixer]

The theory is sound. Where I see the biggest pitfall however is, in practice, you may run into trouble with the appraiser on the new property re-fi if you're not doing any improvements. Even if you get a great deal that is 20% below market, appraisers will typically be anchored by the last sale price and you may be stuck not being able to pull out as much cash as you need to pay off the HELOC.