HELOC vs. Cash-out Refi on primary residence

[Drew Clayton]

I'm stuck in decision limbo on whether to use a HELOC or cash-out refi on my primary residence to fund my first investment property

I know all the basic benefits of the two options, HOWEVER ... I feel like this being my home and my only current property changes the risk calculation compared with if I were considering the same equity liquidation on a different property. 

HELOC seems a little safer, only because I'm not locked into increasing my mortgage should things go south.

Background:

• I have a good amount of equity in my home (owned for 9+ years)
• No specific plans to sell anytime soon
• I have good credit
• W2
• Already at a historically good mortgage rate (3.8)
• Don't have a specific acquisition property on the hook yet, but plan to in the next couple months

I've already found some local credit unions who are still doing HELOCs, but the turnaround time is 30-45 days. There are a ton of institutions out there who'd love to do a refi right now. 

Thanks for your insight, BP brain trust

[Stephanie Medellin]

If you're planning to buy and hold another property with the funds, choose the cash out refinance and lock in a fixed rate long term. Your rate on the HELOC will likely be higher than what you could get on a 30 year fixed rate cash out refinance.

A HELOC is better in the short term if you're planning to repeatedly use the money, pay it back, use the money, pay it back, etc.  If you just need a one time lump sum, and do not plan on paying it back within a year or two, borrow it at a fixed rate.