CashOut Refinance Or HELOC

[Ursula Leake]

Hello To All! I'm a new investor (speaking into existence) and I feel like I'm in a dilemma trying to choose a CashOut Refi or HELOC on my primary residence. Ultimate goal is to finance the down payment and closing cost for my first rental property with the proceeds. Currently I sit at a 3.375% on a 30 year fixed FHA. I have approximately 90k of equity in my home. I was preapproved for a HELOC of $75k (traditional HELOC 3.25%) (interest only 3.5%). If I was to do the CashOut Refi it will be at a 3.125% Estimate 3.4%APR with a 80% LTV with maybe 24k back or more pending an appraisal. If I was to do a regular refinance with no cash I'll be looking at a rate of 2.625%. I was thinking about doing a regular refinance and take the 75k HELOC but I didn't want to have to pay 1% of the money taking out back monthly. Which sounds more beneficial?🥴

[Jody Sperling]

It somewhat depends on what your risk tolerance is. If you use a HELOC on your primary and something goes wrong, well, your primary was the collateral and suddenly you have no primary. That doesn't happen if you cash-out-refi.(For this reason, you could consider asking around for a first-position HELOC from a local bank, erasing the issue of collateral.)

I use a first-position HELOC because the reward, as I see it, is the greatest of all options. You have access to other people's money, you don't impact the equity in your property (i.e. future wealth), and you have a revolving door, so you can use the money, pay it down, and use it again for as long as the bank leaves it open.

Moreover, if you live below your means as a lifestyle, you can build equity into the properties you buy at a much faster rate by chunking payments. Velocity banking is a phenomenal financial strategy that has allowed me to grow my wealth much faster than I otherwise would have.