HELOC - Choose lower short term or long term rate

[Christopher Brown]

I'll start off by saying I'm a newbie.  I love BP!

My wife and I are looking to fund our first deal. We have ~25K cash and $75K in equity in our house and we are looking to use a HELOC for down payment and/or rehab funding. From our credit union we can get a HELOC variable rate of prime - 0.25% (4.75%). From our traditional bank 1st mortgage holder we can get an option of a HELOC with a 1-year fixed rate advance with a rate of 3.235% fixed for 1-year and then a fixed rate of 5.5%. Their variable rate would be ~5%.

In your experience, would it be more beneficial to get a HELOC with a lower long term rate (Credit Union) or a HELOC with an option of a lower 1-year fixed rate for the short term and a higher interest rate for the long term (Conventional Bank)?

Thanks in advance!  Christopher

[Corby Goade]

I've been through this a few times. The goal should be to pay off the heloc with long term financing asap. That said, it's always better to have access to more capital. In the short term, the lower rate with make a negligible difference in your bottom line, but access to less cash could prove to be a problem.