Getting a Cash-Out Refinance, HELOC, or Home Equity Loan: What to Consider
When it comes to tapping into the equity in your home, you have three main options: a cash-out refinance, a home equity line of credit (HELOC), or a home equity loan. But what are the key considerations you need to take into account when deciding which one is right for you?
Here are some things to think about when getting a cash-out refinance, HELOC, or home equity loan:
-How much equity do you have in your home?
-How much cash do you need?
-What are the interest rates and fees?
-What are the terms and conditions?
-What is the impact on your credit score?
Let's take a closer look at each of these options so you can make the best decision for your situation.
If you have built up substantial equity in your home and you need a large amount of cash, a cash-out refinance may be the right option for you. With a cash-out refinance, you refinance your existing mortgage for more than you owe and take the difference in cash.
For example, let's say you have a $200,000 mortgage with a balance of $100,000. You could refinance that loan for $150,000 and use the $50,000 in cash for whatever you need.
The main benefit of a cash-out refinance is that it offers a lower interest rate than other options like a home equity loan or HELOC. However, it does come with some downsides. First, you'll have to go through the process of getting a new mortgage, which can be time-consuming and expensive. Additionally, a cash-out refinance will reset the clock on your mortgage, meaning you'll have to pay off the loan over the course of 30 years all over again.
Home Equity Line of Credit (HELOC)
A home equity line of credit, or HELOC, is a second mortgage that gives you access to cash as you need it. With a HELOC, you're approved for a certain amount of credit based on the equity in your home. You can then draw on that credit line as you need it, up to the maximum amount.
HELOCs usually have adjustable interest rates, which means the payments can go up or down over time. They also typically have lower interest rates than home equity loans. However, there is a risk that the interest rate could increase significantly and leave you with a large bill that you can't afford.
Home Equity Loan
A home equity loan is a type of second mortgage that allows you to borrow against the equity in your home. Like a HELOC, you'll need to have equity in your home to qualify for a home equity loan. But unlike a HELOC, a home equity loan comes with a fixed interest rate and fixed monthly payments.
Home equity loans can be a good option if you need a fixed monthly payment and you're comfortable with the interest rate. However, because they're second mortgages, home equity loans often come with high interest rates and fees.
The Bottom Line
When it comes to tapping into the equity in your home, there are several options to choose from. It's important to carefully consider all of your options and find the one that best suits your needs.