HELOC vs. Cash Out Refi

[Tom Brayden]

Hi All,

I thought I would put this situation out to the community to see what others would do.  

I purchased a condo in 2019 for 178k cash. Due to a pending lawsuit against the HOA from a fire in 2014 the condo currently does not qualify for traditional financing. We put 15k into it, and due to the appreciation of the area the condo is now worth approximately 250k. We borrowed 100k from a private money lender at 4.5% interest at the time of purchase and we currently owe 86k on the loan. We AirBNB the property and are able to pay $1,000 a month toward the loan and still have plenty of cash flow. I also have a HELOC on the property of 115k at 3.5% with a zero balance. I would like to pay off the private lender so we can use those funds toward our next purchase.

My question is should I wait for the litigation to settle (who knows how long this will be) so I can cash out refinance and pay off the private money? Should I use the HELOC to pay off the private lender? Or increase the HELOC to 80% LTV and then pay off the private lender and still have plenty of funds available in the HELOC? I am trying to base the decision off of interest rates, fixed mortgage rates vs variable rates on the HELOC, availability to funds for the next deal, closing costs, and the unknown of when the property will be able to qualify for a traditional mortgage.

Any insight would be appreciated!