Refinance your mortgage vs HELOC

If you own a home, chances are you’ve accumulated a good bit of equity over the years. That equity can be an ideal source of cash should you need it for expenses such as college tuition or major home improvements. You can access that equity in several ways: a cash-out refinance or a home equity line of credit (HELOC) or a home equity loan. 

Which one is most beneficial for your particular situation? Here’s what you need to know about each of these options.

A cash-out refinance:

• Replace your current mortgage with a new mortgage complete with a new term, interest rate, and monthly payment.
• Gives you a lump sum when you close your refinance loan. After paying off your existing mortgage, any remaining funds are yours to use however you wish.
• Can go up to 80% of the equity in your home.
• Offers either a fixed-rate mortgage or an adjustable-rate mortgage. 
• Closing costs similar to your original mortgage. (these can be roped into the loan, so you would not need to bring cash to closing).
• Talk with your tax professional - in many cases you can use the interest as a tax deduction.
• Interest rate is lower than a home equity loan or HELOC and credit cards.
• Have only one payment a month.

A HELOC:

• Considered a second mortgage and has its own term and repayment schedule separate from your first mortgage. 
• Works like a credit card tied to the equity in your home. You’re given a maximum spending limit but charged interest only on the amount you use during the length of your arrangement. 
• Has a variable interest rate based on the U.S. prime rate.
• Usually has interest only payments, which means if you never pay extra, it will never be paid off.
• Can go up to (usually) 90% of the equity in your home.
• Small or no closing costs.

A Home Equity Loan:

• Considered a second mortgage and has its own term and repayment schedule separate from your first mortgage. 
• Uses the equity in your home to give you a lump sum all at one time.
• Fixed interest rate with a fixed term.  Usually terms are shorter, around 10 – 15 years, so the monthly payment can be higher.
• Can go up to (usually) 90% of the equity in your home.
• Small or no closing costs.

If you need the equity in your home to pay for upcoming expenses, you have options. We have the knowledge to help walk you through any of these options!  Which works best for you?  We can help you answer those questions to get your money to work best for you!