with the skyrocket high interest rate shall I borrown HELOC ?

[Dong Yan]

Hello Everyone,

with the skyrocket high interest rate ,shall I borrow home equity line of credit or the convential mortgage to buy the investment property. The loan amount I need is really small about 250K which I have it with my home equity from my primary residency?

some background about my investment portfolio: only small loan<than 500K with my primary residency, no loan for all other investment properties.

If I use Home Equity Line then I have the fix rate 2% lower than the conventional loan with 5 years but the Equity line will change to adjustable rate after 5 years.

In my case which one will benefit me or save money? Borrow the conventional loan for 30 years with the high mortgage rate or borrow the line of the credit.

I am plan to pay it off in 5 years.

In addition , what is the difference between home equity line or home equity loan, in my situation which one shall I borrow?

THank you in advance!

Stella

[Kushaal Malde]

This is an interesting question since you plan to pay off the new loan within 5 years. Given that, the HELOC makes more sense since the rate will be less by 2% and fixed for 5 years, which is exactly when you plan to have the loan paid off by.

If for any reason, your plans to pay it off change and it ends up being longer than 5 years, then the 30 year conventional may make more sense. However, you also have the option to refinance at year 5 out of the HELOC into a conventional loan. Except you won't know the interest rates for the conventional until you begin to refinance. Since you may have some equity build up over the 5 years, you would also have the option for rate/term refinance or cash out refinance.

So, how certain is your plan to pay it off in 5 years? That will be a big influence in your decision.