Line of credit or cash out refinance ?

Question

Hi,  my husband and I bought our 2 flat which we house hack about 6 years ago.  Between appreciation and work we put into it we definitely have equity in it.  We were discussing rehabbing our first level and decided to get a line of credit in order to pay for the rehab.  Now, we decided holding off on the rehab and putting the money towards a multiplex.  Should I call the bank and switch from a line of credit to a cash out refinance? I don’t believe it is too late to do that since we only had our appraisal this morning.  Thoughts?

Tara Jenkins · Answer

Thank you everyone for your insight on my situation.  I love the bigger pockets community and their willingness to help a newbie like me (and thousands of others).

Stephanie P. · Answer

I would stick with the line because you can use it for the multiplex down payment or the rehab and you don't pay on it until you use it. Here are the questions you have to ask yourself and then you'll know the answer to refi vs HELOC:

• Do you want the flexibility of a HELOC vs a refinance because after you take into consideration the flexibility of a HELOC vs a refinance, it's really just a math question.  
• What's your current interest rate?  
• What would your new interest rate be on a cash out refinance?  
• What's the interest rate on the HELOC? 
• What's the blended interest rate (your current loan and the HELOC)
• How much cash will you get with a refi vs a HELOC?  
• Is the loan to value higher with the HELOC vs the refinance?
• How much is it going to cost to get the refinance vs the HELOC?

Once you answer all of those questions, then you'll know which way to go.

Best of luck

Stephanie

Nathan Gesner · Answer

I prefer the HELOC because you don't pay interest on it until you actually take the money out. Then you can pay it off and use it again in the future.

Tara Jenkins · Answer

We used a credit union for the line of credit on the house.  Can we use this money as a down payment on another property?

Eric Veronica · Answer

@Tara Jenkins you may have to restart the process with an actual mortgage loan officer.  If you are getting your financing from a local bank it is possible that the person originating your HELOC is a personal banker or branch manage and not a mortgage loan officer.

It is also possible that the bank may require a different appraisal. Many HELOCs only require a driveby appraisal or an AVM.

Neither of these are a guarantees but definitely good questions to ask.

Line of credit or cash out refinance ?

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