Cash-Out Refi Yay or Nay???

[Thomas Hubbard]

Hey everyone.  I am in North Dallas (not sure how much that matters) but I'll get straight to the point.  I have one rental property I owe $136k on it.  Its worth in the neighborhood of $230k.  I want to do a $50k cash out refi to buy another rental or two this year.  Lender is offering a rate of 4.875%.  My current mortgage rate is 3.5%.  Closing cost would be about $3k.  So to my question,  is it smart to increase my interest rate AND my mortgage balance to make this happen? Should I only consider the refi if I can get a lower rate than I have now or is this all in the game so to speak when getting cash out? Let me know.  Hopefully I have provided enough info 

[Kyle J.]

You can get HELOCs on investment properties, but you're going to have to call around because most lenders will only do them on owner-occupied properties.  It is possible though.  I did two last year on a couple of my rentals.  One of the banks didn't charge any fees at all, and the other only charged an appraisal fee.  So it's a considerably cheaper route than a cash-out refi (which I've also done). 

The drawbacks to the HELOC on an investment property is that you will typically get lower LTVs (60-65% is what I've seen) and the interest rate will be a little higher (between 4.875-5.25% is what the lenders I used were offering at the time I got mine). But at least your whole loan balance won't be at that higher rate....only the portion of the HELOC you use.

I doubt you'll find a HELOC on an investment property under 4% though because most lenders figure the interest rate on them by taking the prime rate (currently 3.5%) and adding some other percentage (i.e. 1.25-2%) to that number. However, you can often times get a small discount for opening a new checking/savings account or having your payments autodrafted from your checking account or something along those lines. Just ask them how to get a discount as every bank has different programs.

Good luck.