Help understanding leveraging debt

[Andy Thoman]

So I don't really understand the whole Refi and HELOC situation... I have a few questions.

What are interest rates usually like compared to traditional residential mortgages?

What is the difference between refi and heloc and other options?

Are there taxes on this?

Let me use an example:

Say I own a house that is worth 100k(It was worth 80k before I fixed it), I owe 50k on it. Right now, my understanding is that I have 30k equity. But if I refinance it and got it appraised for 100k, I'd have 50k equity and the bank would give me 20k? Is that how it would work? Would I get taxed on that 20k?

If I don't think I could appraise it for higher so I just did a HELOC instead of appraising it? Then I could go back to 20% down? So I could go down to 16k equity and have the bank pay me 14k? Do I get taxed on that 14k?

In addition to these scenarios, are there costs do to these deals? Closing costs/appraisal costs, etc.?

Lets take scenario 2 as my situation. Would it be worth it for me to pull 14k out to invest in a rental? Is this dangerous even if I keep 20% in my property? what are the pros and cons?

[Bob Okenwa]

Hi Andy, hopefully I can help explain things for you a bit.

What are interest rates usually like compared to traditional residential mortgages?

Rates are credit and bank-dependent, but I've seen a lot of HELOCs for around 4-6%.

What is the difference between refi and heloc and other options

Refinance creates a brand new loan while a HELOC is basically a big credit card with your house as collateral. By that I mean you can reuse the funds over and over, but the interest rate is variable while the rate on a refinance is typically fixed

Are there taxes on this?

There are no taxes as this money is not income, it is debt. 

As far as equity goes for a HELOC, most banks will give you 80% of the appraised value minus the remaining loan balance so if your home appraised for 100k and you owed 50k, the bank would give you 80k of value and then subtract the 50k remaining balance and you'd have a 30k HELOC. Same principal for cash out refi. The new loan would be for 80k and you'd get 30k in cash at closing.