BRRRR Method Using HELOC with Rising Interest Rates

[Paul Sanchez]

Hi BP community,

I am considering using a HELOC for a 50k down payment on a four-plex. The discounted off market price is 330k with the estimated fair market value at 390k. The mortgage broker has assured me some banks they work with will refinance at 85% LTV.

I am concerned with the refinance after the seasoning period. I have already talked to my refi mortgage broker, have pre-qualified and planned the future refinance in advance, however I am concerned with rising interest rates over the next 6 mo. There is a chance that my refi rate will be higher than the rate at which I bought the house at.

Is this method advisable given probable rising interest rates?

Thanks for any advice in advance!

[Andrew Postell]

@Paul Sanchez Well, I have alarms going off in my head at the 85% cash out, LTV on a 4-plex...I have never heard of any lender doing that - ever. It's hard enough finding lenders that will write 80% LTV on single family homes right now. So this one broker saying that they can write 85% cash out on a 4-plex...that sounds impossible. I'm assuming this is an investment property - so if it's anything different let me know.

However, if they have prequalified you...they should be able to provide you a prequalification letter. Make sure that letter states 85% LTV, cash out refinance. MAKE SURE.  And will your rate be higher than your purchase loan?  This is a question for your broker.  If they can in fact do this, they would be the only lender in existence who can, and if we assume that they can write this - that means they are the only one that can answer that question.  For all other loans, a cash out loan will carry a higher interest rate than a purchase.  I mean, I cannot answer for all 8,000 lenders here - but in 99% of the scenarios a cash out loan will have higher rates or higher fees with them.

Hope all of that makes sense.