HELOC or Cash Out Refi

[Jake Thompson]

*DISCLAIMER*

I know this question has been asked here before but I feel like it is one that is specific to each person. I did look through other answers as well to get an idea of what people were suggesting on the subject. 

So my question is, in a nutshell, should I use a HELOC or should I cash out refi for my down payment of my next property? I'm leaning towards HELOC because our rate is pretty low (3.375%) and if we were to cash out refi our rate would go up pretty substantially. I don't remember what our lender said but basically it translated to an increase of $400/mo on our mortgage. That's also not factoring in the increased principal amount which would raise the payment even further. The reason I have equity isn't because I've paid down my mortgage it's due to appreciation. So when I bought the property I had cash flow at the purchase price, but if I refi at a higher rate and larger amount all of my cash flow from this property will be wiped out. So short story long I really don't see any reason to do a cash out refi...

The way I see it with a HELOC I may have a higher rate, but it would only be a temporary expense as I'd pay it off with cash flow from my properties. That way I still have the lower rate locked in on my current property. Is this a recommended way of coming up with the funds for a down payment?

Sorry if this is a dumb question, I'm not very knowledgeable on creative strategies yet. 

[Daria B.]

Sounds like you got your answer by working through your description. Cash out refi seems like it would be more useful NOT for a down payment but rather a larger portion of cash to actually buy a property. The HELOC I believe you can still deduct (please consult a CPA for your circumstances) as was the case with me. And like you said, it's a temporary expense.