Comparing HELOC options for down payment for investment/primary

[Josh Smith]

Hi,

I want to get a 200K HELOC (pulled from my current owner occupied property) to use as down payment for a second primary house, which may be owner occupied primary or investment. I have 2 options:

1) Bank1: Prime – 0.25% so currently 3.0%. Pretty good IMHO. However, they only offer Principal + Interest and do not offer an interest only option. So the monthly payment is $842.

2) Bank2: Prime + 0.5% so currently 3.75%. However they are offering interest only HELOC. So the monthly payment comes out to be around $625.

Say the lifetime interest rate cap on both the options above is 15% (since prime is not fixed). My preference is to go for Bank1 since it is offering a lower interest rate and I intend to pay off the HELOC within 3years.

Now I want to be qualified for the maximum amount of mortgage possible for my new second home. For that, I know that I have to get my debt to income ratio as low as possible. So, my question is:

1) Will my debt be considered lower if I go with Bank2 due to lower monthly payment (even though I will be paying more total-lifetime interest)?

2) Will my debt towards the HELOC be considered at 3.0%/3.75% (current rate with bank1 or bank2) or 15% (which is the highest the HELOC's can goto)?

Thanks!