Remodel and Refi while rates are low?

[Steve Bronder]

I currently have a HELOC on my personal home that I mainly use to BRRRR rental properties with. I'm considering renovating my kitchen with my HELOC and rolling it into my mortgage to refinance while rates are low. I'm banking that the appraisal will reflect the cost for my renovations and I'll maintain my full HELOC amount so that I can continue investing as I have been. I probably have $20k additional equity than my HELOC reflects, so there's even a little bit of wiggle room there. I know this will add to my principal long term, but I'm thinking I can keep my payment about the same while improving the value of my house. Am I missing anything here? Any advice is greatly appreciated!

[Chris Mason]

Originally posted by @Steve Bronder:

@Jaron Walling The main point is just to renovate my primary residence and continue living there. I just want to make sure I maintain my purchasing power afterwards by keeping the full amount of my HELOC in tact.

Couple things. TLDR it almost always makes sense to close the HELOC concurrent with the refi, and open it again after.

1) The HELOC bank must approve the refi. They will be looking at CLTV and basically re-qualifying you for the HELOC, it's another underwriting process and everything. This may delay the refi from closing, you might have to do a 60 day lock (worse rate/fee combo) or extend the lock to close out the refi (worse rate/fee combo).

2) If the HELOC is left in place, the rate/fee combo on the newly refinanced 1st mortgage will be higher.

By closing the HELOC concurrent with the refi, you avoid both of the above. You have to open the HELOC again afterwards, but since there's no avoiding the fresh underwrite by the HELOC bank anyways, saving a bunch of money makes this the best play.

See Table 3 "Subordinate Financing." These are the rate/fee hits direct from Fannie. 1.000% on that chart typically translates into about 0.25% to rate, or 1 discount point, your choice. That's on top of the normal cash out adjustment on Table 2.

https://www.fanniemae.com/content/pricing/llpa-matrix.pdf