HELOC or equity loan

[John Ford]

I have an investment property that has a crap-ton of equity from appreciation, about $250k in equity. My credit union will give me up to $100k in either an investment HELOC or investment equity loan, which I'm planning to use as either a down-payment or to buy another property to BRRRR. The loan has a fixed rate, a 5-year interest-only period, then a 10-year P&I period.

The HELOC has a variable rate, a 20-year interest-only draw period, then a 20-year repayment period. So theoretically, I could use it over and over for the next 40 years to finance BRRRR properties! But the rate adjusts monthly and isn't capped until 18% (currently nowhere near that, but you never know...)

Would you take the HELOC or the loan?

[Kevin Siedlecki]

@John Ford

At those rates, I say go HELOC. If you were talking about locking in a 4 or 5% rate on the loan, that would be a different story. But even if the HELOC rate goes up significantly, you have flexibility to draw and pay off as you choose. And you can make those decisions based on where rates go. Locking in 9% on a 15 year loan for the full amount offers you a lot less flexibility.