Cash-out Refi or HELOC

When considering options for accessing the equity in your home to purchase your next investment property, the two most popular choices are a home equity line of credit (HELOC) and a cash-out refinance. Both options allow you to access the equity in your home, but they work differently and may be better suited for different financial situations.

A HELOC is a type of loan that allows you to borrow against the equity in your home. Similar to a credit card, a HELOC has a credit limit based on the value of your home equity, and you can withdraw funds as needed. The interest rate on a HELOC is typically variable and may be higher than the interest rate on a traditional mortgage.

A cash-out refinance involves refinancing your existing mortgage and taking out a new loan for a higher amount than your current mortgage balance. The difference between the two loan amounts is paid out to you in cash, which you can use for any purpose. Cash-out refinancing typically has a fixed interest rate and may be a better option if you need a large amount of cash at once.

Both a HELOC and cash-out refi can be used to purchase your next investment property, but deciding which to do is the tricky part. Both options have their pros and cons, and what works best for one person may not be the best choice for someone else.

A HELOC can be a good option if you already have a lot of equity in your primary residence. However, the interest rate on a HELOC is usually variable, which means your monthly payments could fluctuate over time. A HELOC is a form of revolving credit, which means it can be tempting to use it for non-investment purposes. If you personally think you will be tempted to use the HELOC for anything but investing purposes, a cash-out refi might be a better option for you.

A cash-out refinance can be a good option if you want to lock in a fixed interest rate and have a predictable monthly payment. However, a cash-out refinance will increase your overall mortgage balance, which means you will be paying interest on a larger amount of money. In addition, you may be required to pay closing costs and other fees associated with the refinance.

Both options work, but you have to evaluate your situation and figure out what is best for you.