New HELOC vs Cash-Out Refinance for a Draw Period That Ended

The Quick Read: A new HELOC fits an investor who holds the rental personally, has strong credit, and wants a line-sized draw. A cash-out refinance fits an investor who needs more equity than a line allows, holds title in an LLC, or wants qualification to rest on the property’s rental income, subject to lender guidelines. Both options replace the old line. They do it in very different ways.

• A new HELOC on an investment property tops out at 70% CLTV (combined loan-to-value) with a $500,000 maximum line, and it is reviewed on your personal credit and debt-to-income ratio.
• A DSCR cash-out refinance on a standard rental generally tops out around 75% LTV, with about 6 months of seasoning as the common expectation.
• A new HELOC keeps your first mortgage. A cash-out refinance replaces it.
• Check your old agreement first. A balloon payment changes the order of every decision.

Here is the honest answer in a paragraph. Pick the HELOC when the first mortgage is worth keeping, the amount you need fits under the line cap, you hold title personally, and your own income and credit are strong. Pick the cash-out when the combined balances are large, the property sits in an entity, your personal debt-to-income ratio is the bottleneck, or you would rather lock in a term structure than carry an interest-only line. Neither option is better in general. Each one wins on a different file.

Side-by-Side

This table puts the two paths next to each other on structure and eligibility, not pricing.

Both columns show figures from select lenders in Lendmire’s wholesale network. The HELOC column also tracks what published industry sources describe for rental lines. The DSCR column reflects programs placed through the same network, and every figure is subject to lender guidelines and full file review.

On title, a HELOC cannot be written to an LLC, a corporation, a partnership, or an irrevocable, blind, or land trust. A DSCR cash-out can close in a LLC’s name, depending on program guidelines. A rental already deeded to an LLC therefore usually points toward the cash-out or toward a vesting change before any HELOC.

What the Draw Period That Ended Left You With

An ended draw means you can no longer borrow, and the balance now has to be repaid. Experian describes draw periods that commonly run 5 to 10 years, followed by a repayment period that is more commonly 20 years. Draw length varies by lender, though, and your contract sets the real terms.

Two things usually change at once. Borrowing stops, and the payment shifts from interest-only to principal plus interest. That shift can be a large jump on a big balance.

You are now choosing how to exit. A new HELOC resets the clock with a fresh interest-only draw. A cash-out refinance pays the old line off inside a new first mortgage. A third option sits outside this comparison: pay the balance down or off from cash on hand or a sale.

Whichever route you take, you need the payoff figure for both liens. That means the first mortgage and the old HELOC. Every calculation below starts from those two numbers.

When a New HELOC Is the Better Fit

A new HELOC wins when the first mortgage has terms worth protecting and the amount you need is modest. It also needs a borrower whose personal file is strong. Here is how that looks across the network.

• The first mortgage is worth keeping. A HELOC sits in first or second lien position and leaves an existing first mortgage alone. If that first loan has a long remaining term or a structure you cannot easily replace, this matters.
• The need fits under the line cap. Investment lines run $25,000 to $500,000, and anything larger on an investment property does not exist as a HELOC. There is no higher investment tier.
• Your credit and income are solid. The minimum credit profile on an investment line is 700. Market surveys report that investment HELOCs typically want 720 or higher, per NerdWallet. The network figure is 700, and the file is still reviewed in full.
• Your debt load leaves room. Debt-to-income tops out at 50%, and the lender reviews your file on the interest-only payment calculated on the maximum draw. A ratio above 45% requires a 680 minimum score.
• You hold title personally. The borrower holds title individually or in a revocable living trust.

Be realistic about what the line is. At least 75% of the line is drawn at closing. A new HELOC after a draw period that ended is therefore mostly a refinancing tool, not a standby cushion. The line also floats across the draw and the repayment period and never converts to fixed.

One structural point trips people up. Leverage is measured as combined loan-to-value, which adds every lien on the property and divides by its value. On an investment property, the first mortgage, any remaining old HELOC balance, and the new line together must fit inside 70% CLTV. A property with a first mortgage near half its value leaves roughly 20 points of value for the new line. The same property with a first near 65% leaves very little.

The network also limits a borrower to three lines, and a borrower with more than 15 financed properties is not eligible. Manufactured homes, co-ops, condotels, log homes, and commercial, mixed-use, or agricultural-zoned property are not offered.

When a Cash-Out Refinance Is the Better Fit

A cash-out refinance wins when the numbers are bigger, the title is in an entity, or your personal income file is the weak link. It replaces the first mortgage and the old line with one new loan. Qualification runs primarily on property-level rental income covering the payment, subject to lender guidelines.

DSCR (debt service coverage ratio) is monthly rent divided by the full monthly payment. That payment is PITIA: principal, interest, taxes, insurance, and any HOA dues. A ratio of 1.00 means rent equals that payment. Across the network, 1.00 is where select programs start. Stronger ratios tend to open better pricing and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.

Here is how a cash-out lines up against the HELOC on the factors that decide most files.

• More room. Standard rentals generally go to about 75% LTV on a cash-out, and short-term-rental collateral goes to 70% on a cash-out. Loans run up to $3,000,000 on standard programs (smaller balances available through select lenders). Above $2,500,000 the network generally holds to 30-year fixed structures.
• Credit flexibility. A 620 floor exists in parts of the network, most programs want around 660, and 700 or better unlocks the strongest leverage tiers.
• Personal income is not the test. Qualification runs on the property’s rent covering the payment, so self-employed investors and borrowers with many properties can still work. Credit, title, value, and rent documentation is all reviewed. That is not the same as skipping paperwork.
• A term structure to plan around. The 30-year fixed is the spine. Extended terms (40-year) and interest-only periods are available through select lenders in the network, and ARM structures exist for investors who want them.
• Entity vesting. An LLC can hold the property, subject to lender program eligibility.

The costs are real. A cash-out replaces your first mortgage, so whatever that loan offered is gone. DSCR loans commonly carry a prepayment penalty, so exiting early may cost you. About 6 months of seasoning is the common expectation, so a recent purchase or rehab funded by the old line can affect the order of moves.

Reserves also come into play. They vary by lender, leverage, loan size, and transaction type. Around 6 months of PITIA is common, and loans above $1,500,000 typically step up to about 9 months. If the new loan only pays off the first mortgage and the HELOC with no cash back, it may be treated as a rate-and-term refinance. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived.

DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. If cash-out proceeds will go to personal spending, tell your broker up front, because the classification of the loan can change.

Read the Old Agreement First (Balloon or Not?)

Most investors pick a path before they read the contract. That is backward. The CFPB’s HELOC booklet explains that a line can end in a repayment schedule or in a single balloon payment. It adds that you must be ready to pay a balloon by refinancing, getting another lender’s loan, or other means. Failing to pay a balloon in full could cost you your home.

So the contract tells you whether you have time or a deadline. If the balance amortizes, you can compare both options calmly. If it is a balloon, you need a closed replacement before the due date.

Read three other things in that agreement. First, find the repayment term and whether the rate keeps moving. Second, look for an early-termination fee. Third, check whether your lender can reduce or freeze the line, which the CFPB’s HELOC explainer notes can happen if home value drops significantly or your finances change. A line that gets frozen mid-plan is an argument for a term loan.

A Worked Scenario in Percentages

Consider a duplex whose first mortgage and old HELOC balance together sit at about 60% of the property’s value. These inputs are modeled assumptions, not market data.

The new HELOC route first. The investment ceiling is 70% CLTV, so that duplex has about 10 points of value to work with. That is a small draw. It would pay off the old line only if the old balance is small.

Now the cash-out. A standard rental can go to around 75% LTV on a cash-out, so the same duplex has about 15 points of room. That is a larger pull. Suppose rent covers the full PITIA at roughly 1.2x. The file clears a 1.00 starting point with some cushion, and the cash-out can pay off both liens in one transaction. The cost is replacing the first mortgage and carrying the seasoning and prepayment terms that come with it. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Two cautions. First, a coverage ratio above 1.00 does not mean positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside it, so a property can pass the coverage test and still leave thin cash after a large pull. Second, if the ratio lands under 1.00, a select-lender path exists with leverage and terms adjusted, but qualification stays subject to credit approval and property review.

A larger down payment or lower balance can lift the ratio. It never erases the leverage cap, the credit floor, the reserve rule, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.

This one is a genuine toss-up on a mid-sized balance. The HELOC leaves the first mortgage alone, which is attractive. But it also leaves you personally liable on an interest-only line with a 50% debt ceiling. The cash-out costs more up front in structure but leaves you with a term loan that is reviewed on the property.

A practitioner note from broker-side file flow: investors often discover the ceiling problem after the appraisal or valuation, not before. The combined balances on the old line and the first mortgage are the real limiter. Pulling payoff figures for both liens before choosing a path prevents most of those surprises. Also remember that a HELOC payment is a real personal obligation that a property-level coverage ratio on other loans does not capture.

Which Documents Each Path Needs

For a HELOC on a rental, expect credit, debts, reserves, and property details. Published guides also mention lease agreements and rental history. Lenders vary on how much projected rent they count.

For a DSCR cash-out, expect a lease or a market-rent appraisal, a title search and payoff statements for both liens, entity documents if an LLC holds title, and the guarantor’s credit. The appraisal uses a rent schedule form for single-family or a small-income-property form for 2-4 units. A DSCR cash-out needs a full appraisal with a rent schedule rather than an automated valuation.

Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.

The Verdict

Choose the new HELOC when four things line up. The first mortgage is worth keeping, the draw fits under the $500,000 cap and the 70% CLTV investment ceiling, your credit sits at 700 or better, and you hold title personally. It is the lighter touch, and the interest-only draw buys breathing room (though it also resets the clock on the same balance).

Choose the cash-out refinance when the combined balances are large, the property sits in an LLC, your personal debt-to-income ratio is tight, or the property’s rent is a stronger story than your tax return. It costs you the existing first mortgage and adds seasoning and prepayment terms, but it ends with one loan and a clear structure.

If you cannot decide, run both combined-leverage tests on your actual payoff figures first. Often one option is ruled out before preference even matters. The complete DSCR loans guide covers the cash-out side in full.

Next Step

If you are weighing a home equity line against a cash-out refinance and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals. Lendmire is a mortgage broker that arranges investor loans through select lenders in its wholesale network. It is not the lender, and every file is reviewed individually. Nothing here is a commitment to lend.

A deeper walk-through of investment-property equity extraction lives in Lendmire’s guide to cash-out refinance on an investment property.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker. Home equity lines of credit — on a primary residence, a second home or an investment property — are arranged through wholesale lenders in Lendmire’s 16 full-service states, and every line is underwritten by the lender under its program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Experian – What Is a Draw Period on a HELOC?

2. NerdWallet – Can You Get a HELOC on an Investment Property?

3. CFPB – What You Should Know About Home Equity Lines of Credit (booklet)

4. CFPB – What is a home equity line of credit (HELOC)?