Both tap equity in a rental. One adds a line of credit behind your current loan. The other pays off that loan and starts a new one. The right choice depends mostly on the loan you have now.
In short: A HELOC on a rental keeps your existing first mortgage and adds a line of credit behind it, usually with a variable rate. A DSCR cash-out refinance pays off the current loan with a larger one, up to 75% of value, often on a 30-year fixed rate and qualified on rent. If your current first mortgage has a low rate you want to keep, a line can make sense when you can find one. If you want one fixed payment, a larger amount, or LLC vesting, a cash-out refinance often fits better. LendingStreet offers DSCR cash-out refinances, not HELOCs.
A HELOC is a second lien. You draw what you need, pay interest on what you use and keep the first mortgage untouched. A cash-out refinance is a new first lien. It pays off the old loan and gives you the difference in cash at closing.
Lines on investment property are generally less common than lines on a primary home, and terms vary a lot from bank to bank. Ask any line lender directly about rate type, draw period, maximum combined LTV and whether an LLC can borrow.
| Feature | HELOC on a rental | DSCR cash-out refinance |
|---|---|---|
| Lien position | Second, behind your current loan | New first lien |
| Existing mortgage | Stays as is | Paid off |
| Rate type | Usually variable | 30-year fixed options |
| How you get funds | Draw as needed | Lump sum at closing |
| How it qualifies | Set by the line lender | Property rent vs the new payment |
| Maximum leverage | Set by the line lender | Up to 75% of value |
The strongest case for a line is a low-rate first mortgage. If the rate on your current loan is well below today's rates, refinancing the whole balance can raise your total cost even though you only wanted a smaller amount of cash.
A line can also suit uneven needs, like funding rehab in stages, when you do not want to pay interest on cash you have not used yet.
A refinance also leaves you with one loan and one payment, which is simpler to track across a portfolio.
This example is illustrative and not a quote. A rental is worth $400,000. The current first mortgage balance is $200,000 with a principal and interest payment of $1,250 a month. Rent is $2,900 and taxes and insurance are $450 a month. The owner wants about $80,000 to $100,000 for the next deal.
Option A is a line of $80,000 behind the first mortgage, a combined 70% of value, at an assumed variable rate of 8.5%, interest only. That adds about $567 a month, so principal and interest across both loans is about $1,817.
Option B is a DSCR cash-out to $300,000 (75% of value) at a sample fixed rate of 7.25% on 30 years. Principal and interest is about $2,047, giving about $100,000 before closing costs. The full payment is about $2,497 and the DSCR is about 1.16x.
| Item | Option A: line | Option B: cash-out |
|---|---|---|
| Cash available | $80,000 | $100,000 before closing costs |
| Monthly principal and interest | About $1,817 combined | About $2,047 |
| Rate type | Variable on the line | Fixed |
| Loans on the property | Two | One |
In this example the line costs less each month because the low-rate first mortgage stays. But the line's rate can rise, interest-only payments do not reduce the balance, and the cash available is smaller. The refinance costs more each month but locks the payment and pays down principal.
Run your own numbers with your actual first mortgage rate. The older and cheaper your current loan, the stronger the case for leaving it alone.
Some investors use a line on their primary residence instead of on the rental. That puts the home behind the investment, which is a separate risk to weigh. Our page on using a HELOC for a rental down payment covers that structure.
If you are weighing a line against a refinance, start with a real cash-out figure. Send the financing team your value, current balance and rate, rent and how much you need. We review your scenario and come back with options you can set next to any line offer.
No. We offer DSCR cash-out and rate-and-term refinances on investment property. A line of credit would come from a bank or credit union.
It can be per month when your first mortgage has a low rate, because that loan stays. Lines are often variable, though, so the cost can change.
Some line lenders allow a line behind a first mortgage, but terms vary. Check with the line lender and your first mortgage terms before applying.
It depends on the line lender. DSCR cash-out refinances routinely close in an LLC.
Up to 75% of appraised value, minus your payoff and closing costs, as long as the rent covers the new payment at the program's minimum DSCR.
Yes. Paying off other debt on investment property is a common business use of cash-out proceeds.
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