The cost of touching the first mortgage
Suppose a rental carries a first mortgage from a few years ago at a rate well below anything available now. A cash-out refinance pays that loan off and starts a new, larger one at today's investment-property rate — on the whole balance, not just the cash you take. The higher payment on the dollars you already owed is the real cost of the refinance, and it is easy to miss because it is spread across thirty years. A line of credit behind the first leaves the cheap loan where it is and charges today's rate only on what you draw.
When the refinance makes sense
Three situations flip the answer. First, the existing first is expensive — a hard-money or private loan after a rehab, or a loan from a high-rate year — so replacing it is itself a gain. Second, the balance is small relative to the equity, so repricing it barely matters. Third, you want one loan and one payment for the long term rather than a line that you will pay down and redraw. In those cases a cash-out refinance, often a DSCR cash-out qualified on the rent, is the cleaner tool.
How the two qualify differently
A refinance on a rental can be qualified on the property's rent alone (DSCR) and closed in an LLC. A line of credit on a rental is qualified on you — credit and income, documented with returns or bank statements — and on the programs here the property must be in your name. So an investor whose personal income is thin but whose rents are strong may find the refinance easier to qualify for, while an investor with good income and a cheap first mortgage gets more out of the line. Occasionally the answer is both: a DSCR first and a line behind it, which has its own page.
Closing costs and speed
A refinance carries full closing costs on the full new loan amount, an appraisal, and typically a month or more to close. The digital line closes on most files without an appraisal appointment and can fund within about five business days; its origination fee is charged on the line amount, not on your existing balance. Fees differ by program and state and are quoted to you, not published here.
The quick comparison
- First mortgage: line keeps it; refinance replaces it.
- Rate applies to: line — the new money; refinance — the whole new balance.
- Qualified on: line — your credit and income; refinance — can be the rent alone (DSCR).
- Title: line — your name; refinance — your name or an LLC.
- Timing: line — days on the digital program; refinance — weeks.
- Best when: line — the first is cheap and you want flexibility; refinance — the first is expensive or you want one permanent loan.
Questions investors ask about this
Is a HELOC on a rental cheaper than a cash-out refinance?
The line prices only the new money; the refinance reprices the balance you already owe. If the existing first mortgage is cheap, the line is usually the lower total cost even if its rate is higher than the refinance rate. Run the numbers on your balance before deciding.
Can I keep my low-rate first mortgage and still get cash out?
Yes — that is what a second-lien line does. The first mortgage, its rate and its payment stay exactly as they are.
Which is easier to qualify for?
The refinance, if your personal income is thin but the rent is strong, because a DSCR refinance ignores your income. The line, if your income documents well and you want to leave the first alone.
Can I do both?
Sometimes: a DSCR first mortgage with a line of credit behind it. Whether the first lender allows a junior lien and whether the line program will sit behind a DSCR loan are the questions, covered on the lien-position page.
What about a home equity loan instead of a line?
A closed-end second — one lump sum, fixed payment — is a third option on some rentals. The digital line already behaves much like it, since every draw is fixed-rate and fully amortized, with the added ability to redraw as you pay down.
Keep reading
- How a HELOC on a rental worksWhat is different from the line on your own house, and why most banks say no.
- Behind a DSCR or portfolio first mortgageLien position, subordination and prepayment questions.
- Using the line to buy the next rentalDown payment, closing costs, BRRRR and the refinance that follows.
- Qualifying with bank statementsFor landlords whose tax returns are written to show as little as legally possible.