HELOC on rental property offered at 7.98%

[Russell Buxton]

I'm been offered a 7.9% 250k HELOC on a multi family property I own free and clear. Property is worth 400 K.

Trying to decide whether this is a good deal. Many of you may say initially that this interest rate is too high; however, think about this. We have 30k of free cash every month we can leave sitting in the HELOC thus reducing any interest rate owned. (Interested is calculated at daily rate not monthly like a traditional amortized mortgage)The goal is to use the HELOC to buy an investment property thus savings on cash out refinance fees and then pay down the HELOC over the course of a year. Then I keep going back to this same HELOC to buy future investment properties, thus continually saving and avoiding cash out refi. fees. I could also use the HELOC to pay down a mortgage I have at 6%. Again, on paper it Seems stupid to take out a loan at a higher interest rate to pay off a loan at a lower interest-rate, but based on the way the interest is calculated on the HELOC I believe that in the long run I would pay much lower interest on the investment property. Does anybody know how I could calculate whether I am making a good decision trying to use HELOC as a financing tool for future investment properties? Or at what point the HELOC interest rate is too high. Thoughts anyone?

[Kevin Romines]

We have a 1st mortgage HELOC product that is good for rental properties and allows a person to draw on the HELOC for the full 30 years. What you are describing sounds just like our HELOC. If you're going to continue to invest in rental properties, the HELOC is almost a necessary tool to have to do just that.

Using the HELOC as your bank account makes great sense so long as you have more money going in than goes out. Your balances will come down quicker and considering the interest is calculated daily based on the balance (reduced balance) you will be saving money each and every month on the interest costs.

These HELOC will out perform any fixed rate product if used correctly and they will always have funds available to draw from when you need it compared to a fixed rate loan.

In my opinion, if they are used correctly, this HELOC far out performs any fixed rate loan and all other HELOCs. There isn't a limit on the number of financed properties like Fannie Mae and Freddie Mac has. Currently you can do up to 3 different loans and properties on these HELOCs, however within 1 month that will be extended to a max. of 10 HELOCS at any one time. Its a great tool when fully understood and used correctly.

I hope this helps.