When you’re trying to decide how to finance a large purchase or consolidate debt, you have a few options available to you. Two popular options are cash-out refinances and home equity loans. But which one is the better choice for you?
To help you make this decision, let’s take a look at some of the key considerations for each option:
-With a cash-out refinance, you’ll be taking out a new mortgage on your home for more than what you currently owe. This will allow you to access the equity in your home and use it for other purposes.
-One of the benefits of a cash-out refinance is that you may be able to get a lower interest rate than what you’re currently paying on your mortgage. This can save you money over the life of the loan.
-Another benefit is that you can choose to spread out your payments over a longer period of time. This can make your monthly payments more manageable.
-However, one downside of a cash-out refinance is that it will add to the overall length of your mortgage. This means you’ll be paying off your home for an extended period of time.
-Another potential downside is that if you have a low credit score, you may not be able to qualify for a cash-out refinance.
Home equity loan:
-A home equity loan is a second mortgage on your home. This means you’ll have two mortgages to pay each month.
-One benefit of a home equity loan is that it can be easier to qualify for than a cash-out refinance. This is because the loan is secured by your home equity, so lenders are taking on less risk.
-Another benefit is that you may be able to get a lower interest rate than with a credit card or personal loan. This can save you money over the life of the loan.
-However, one downside of a home equity loan is that it will add to your overall debt load. This can make it more difficult to qualify for a mortgage or other types of loans in the future.
-Another potential downside is that if your home value decreases, you could end up owing more on your loan than your home is worth. This is known as being “underwater” on your loan.
So, which option is the better choice for you? It depends on your individual circumstances. Be sure to speak with a financial advisor to get more personalized advice.