HELOC Help

[Scott Stevenson]

Hello everyone - This is my first time dealing with HELOC's and would like some advice moving forward. The situation is that I currently have ~$15,000 in equity to use in my SFH rental. The appraisal is at $88.000 and I owe $51,000 and based off my income and credit score they are willing to lend to 75% through a HELOC. They offered me two options. 1) I open the HELOC for $15,000 at an interest rate of 9.4% when I use it. Interest only payments for up to ten years. The other option is: 2) They pay off my existing mortgage and tie in the HELOC with a new loan of theirs and have a new interest rate of 5.4% that covers the 51000 I owe and whatever I choose to use as part of the HELOC. My current interest rate on the property is 5% with the lender I have on it at the moment. My mortgage payment would go up roughly $10 from making the switch to a 5.4% interest rate from 5% over the course of the loan. And I could use my equity in the house at a significantly lower interest. I'm looking towards the long term however and to me it seems like the first option would still be better deal even with the higher interest rate as it is on a lesser amount and not over the course of a 30 year loan. Also, the lender was going to email me back today about the fees associated with option 2. Option 1 only has a $60 annual fee attached to it. Am I going wrong somewhere?