Cash-Out Refi vs. HELOC

If you’ve owned rental property in Charlotte for years, you likely have more equity than you realize. The city’s growth, driven by migration, new jobs, and rental demand, has increased property values in Mecklenburg, Union, and York. Investors see opportunity in this equity.

The main question is how to access it: cash-out refinance or HELOC? Both enable you to leverage existing property for purchases or renovations, but they differ in function, costs, and suitability for strategy.

Here’s a breakdown of their meanings, comparisons, and when one may be preferable in North Carolina’s current lending climate…

The Cash-Out Refi

A cash-out refinance is like hitting reset on your mortgage. You replace your current loan with a new, larger one, typically up to 75% of your property’s current appraised value, for single-unit investment homes in North Carolina. The difference between your previous loan balance and the new loan amount is received as cash.

Say your rental in Matthews is worth $400,000 and you owe $230,000. A 75% cash-out refi gives you a new loan of $300,000, leaving roughly $70,000 to reinvest after closing costs. You can use that cash for almost anything related to your business: a down payment on another property, a rehab project, or to pay off high-interest debt.

The main appeal is that your new loan usually has a fixed rate and term, with one monthly payment. However, this comes with costs as you’ll pay full closing costs again (about 2%–6% of the loan) and might trade a low rate for higher ones. For example, refinancing from 3.5% in 2021 to 6.75% now hurts, but if your property’s appreciation outweighs the higher interest, it might still be worthwhile.

The Rental HELOC

A HELOC is more like a credit card secured by your property. Instead of replacing your existing mortgage, you keep it intact and add a revolving line of credit, typically up to 65% of the home’s value for investment properties, depending on the lender. In Charlotte, credit unions like SECU and some regional banks offer investment-property HELOCs, but they’re pickier about combined loan-to-value ratios than they are with owner-occupied homes.

During the draw period, often 10 years, you can borrow what you need and pay interest only on the amount you’ve used.

That makes it ideal for staged projects, maybe renovating one unit now and saving the rest for another property next year. When the draw period ends, you enter repayment mode, and the monthly payment jumps as principal amortizes.

Local Rules of the Game

North Carolina follows the same conventional lending caps as most of the country: Fannie Mae and Freddie Mac limit cash-out refinances on investment properties to 75% LTV for one-unit rentals and 70% for two-to-four-unit properties. That ceiling defines how much you can actually extract. HELOCs, meanwhile, rely on lender discretion. Many local banks cap combined LTV (first mortgage + HELOC) at around 65%.

There’s a seasoning requirement: at least one borrower must have been on title for 6 months before a cash-out refi, unless qualifying for a “delayed financing” exception after a recent all-cash purchase. HELOCs have looser seasoning rules but stricter credit-score and debt-to-income thresholds.

Counting the Cost

A cash-out refi involves a full round of closing costs: origination, title, appraisal, recording fees, and possibly points to secure a better rate. It’s a bigger financial event, but the rate is usually lower than what you’d pay on a HELOC.

A HELOC, by contrast, may have minimal upfront fees, yet its variable interest rate can creep up quickly. Most lenders tie rates to the prime rate, which fluctuates with Federal Reserve policy. When you’re modeling cash flow, build in a cushion for rate swings. What looks like a cheap source of capital now could become a financial strain in a high-rate environment.

Which Tool Fits Your Strategy?

A cash-out refinance is used when you know you need a large lump sum today, and you’re comfortable resetting your mortgage clock for another 15–30 years. It’s a great choice if you plan to hold the property long term and want predictable payments.

A HELOC acts like a scalpel, offering precise flexibility for investors who need it. It’s ideal for those with a low first mortgage rate or for managing multiple projects.

You might draw $40,000 for a rental upgrade, pay it back over a year, and then reuse the line for a new opportunity. The downside is its volatility, as payments may increase if interest rates rise or if the lender reduces your credit limit during market downturns.

Charlotte Case Study

Picture Investor A, who owns a duplex in University City. It’s worth $500,000 with a $250,000 mortgage at 4.25%. They’re eyeing a new build-to-rent project in Gastonia and need a $75,000 down payment.

If they pursue a cash-out refi, they could borrow up to 75% of the value ($375,000), pay off the $250,000 mortgage, and walk away with about $125,000  more than enough. Their rate jumps to 6.75%, but they have a single fixed payment and stable amortization.

If they choose a rental HELOC instead, they might qualify for a $75,000 line at prime + 1%, keeping the original 4.25% mortgage untouched. Payments start small, interest-only, but could rise sharply if rates climb or the bank later adjusts the line.

The optimal choice depends on their specific goal. Refinance offers straightforward, long-term benefits, while HELOC allows for more flexible, multiple transactions.

When the Bank Changes the Rules

HELOCs are convenient but not guaranteed. Lenders can freeze or reduce lines if property values drop or financial circumstances change, especially in a cooling market. A cash-out refinance, once closed, can’t be clawed back.

A refinance restarts your mortgage and adds closing costs. Over time, additional interest might outweigh the benefit of withdrawing cash, especially for small amounts. Charlotte investors often pair a HELOC for short-term needs with a fixed-rate refi when rates improve.

Stability or Flexibility?

A cash-out refinance gives you stability, larger proceeds, and fixed payments, but it takes longer, costs more upfront, and resets your balance. A rental HELOC, meanwhile, offers speed and flexibility, giving you quick access to cash for your next deal but with higher rate risk and smaller limits.

If you’re in growth mode, acquiring multiple properties or renovating quickly, a HELOC keeps your capital moving. If you’re focused on long-term cash flow and portfolio stability, a refinance locks in structure and predictability.

At Henderson Investment Group, we assist Charlotte investors in matching the right financing to their strategy, ensuring every dollar of equity works harder. Review your portfolio, analyze the figures, and develop a smarter growth plan. Schedule your free consultation now!