Hi guys! I need help!! This is longwinded, but here it goes... I am trying to get my funds up to invest in our first real estate deal and am having a tough time making a decision on whether to do a Heloc or cash Refi. As it stands right now we'v been in our house for a little over 3 years. We bought at $210K (owe $187K) @ 3.625. Estimated property value in our primary residence is $275K. Our current payment is around $1350 including Taxes, PMI, ETC. I think our house would currently rent for approx $1500 or so and I am trying to keep my payment in that range in case we move to the new investment property and rent this one out.
I have a few things to consider here.
HELOC:
The HELOC has no fees for us unless we sell the house in 24 months( which is approx $800 if we do), other than that we'd have a 10 yr draw period and would only be paying interest on the amount we use (which could then be locked into a sub-loan with a fixed rate). I understand that the interest paid on this type of loan cannot be written off in Oregon. With current LTV, the credit union says we have been approved for approx $48K. We'd still be paying the $137/month in PMI (which kills me to think about the waste of $42K over the life of the loan) and only be paying interest payments unless we can afford to pay extra for principal. This means that we'd still be paying around $1500/month as I would like, but no payment on principal (for HELOC) and still paying PMI on current mortgage.
Cash Out REFI:
Our mortgage company just said they would try to wipe out the closing costs to compete with the HELOC. If I pulled $25K out with this REFi, I'd be coming out of pocket ($650) for the appraisal and our new payment would be approx $1500 (which is good becuase I think this house would rent for this in todays market and I wouldn't have to come out of pocket on monthly mortgage payment if occupied). We would then owe approx $215K after closing (that's with filling up our escrow acct for taxes,etc again). Our new rate would be 5.375 and would reset us to a 30 year mortgage. Our lender says that although we currently have a 3.625% rate and currently pay $137/month in PMI we actually have a 4.38% rate without even really knowing or thinking about it. So by going this route we'd have to pay approx $150 more each month on our mortgage, but we'd be cutting out the wasteful PMI and have $25K in the bank to put towards an investment. This interest is also a tax write off which would of course lower our taxable income for the year.
I feel like this is a lot to consider and I cannot figure out what would be best. We'd like to rent out our current house and either move into another SFR or possible a multifamily with FHA.
Any thoughts?
