Equity Lines on Investment Property: How Investor HELOCs Work
An equity line lets you tap a rental's equity when you need it, without replacing a low-rate first mortgage. Here's how investor HELOCs work.
Short answer
A HELOC on an investment property is a revolving line of credit secured by the rental, usually behind your existing first mortgage. You draw what you need, pay interest on what you use, and keep your current first loan in place. The size of the line depends on the property's value and a combined loan-to-value limit.
Key points
- Keeps your existing first mortgage in place.
- You pay interest only on what you draw.
- Sized by value and a combined loan-to-value limit.
How it works
The line sits behind your first mortgage as a second lien. You draw funds when you need them, often for a down payment or a rehab, then repay and draw again during the draw period. Rates are usually variable.
How much you can access
Lenders set a combined loan-to-value limit across the first mortgage and the line. Limits on investment properties are typically lower than on primary homes, and they vary by program.
Deal sheet: Rental worth $500,000, illustrative
| Amount | |
|---|---|
| Property value | $500,000 |
| Combined limit, 75% | $375,000 |
| Existing first mortgage | −$250,000 |
| Potential equity line | $125,000 |
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HELOC or cash-out refinance?
- Choose a HELOC when your first mortgage has a low rate you want to keep, or when you need flexible access over time.
- Choose cash-out when you need a lump sum and the new rate is competitive; see cash-out refinancing on a rental.
- Consider a second-position cash-out for a one-time lump sum without touching the first loan.
Use equity for things that earn more than they cost, like your next down payment; see cash to close on a rental.
Frequently asked questions
Can you get a HELOC on a rental property?
Yes. Some lenders offer equity lines on investment properties, usually with lower combined loan-to-value limits than on a primary home.
Does a HELOC replace my first mortgage?
No. A HELOC sits behind your existing first mortgage, so you keep that loan and its rate.
Are investment property HELOC rates fixed?
Usually not. Most HELOCs have variable rates, though some products offer a fixed-rate option on part of the balance.
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