Comparing Cash-Out Refinance vs. Home Equity Loans

The two major types of loans that use your home’s equity as collateral are a cash-out refinance and a home equity loan. Both loans have their pros and cons, so it’s important to evaluate your needs and situation before deciding which one is right for you.

A cash-out refinance is a new first mortgage loan used to pay off an existing mortgage (including a second mortgage). The loan proceeds are disbursed as a single lump sum, giving you cash to use as you see fit.

A home equity loan is a second mortgage that allows you to borrow against the equity in your home. The loan proceeds are disbursed in a lump sum, and you make monthly payments on the loan until it’s paid off.

Here are some things to consider before deciding which type of loan is right for you:

-How much equity do you have in your home?

-What are you looking to use the loan proceeds for?

-How much can you afford to borrow?

-How long do you need to repay the loan?

-What are the interest rates and fees associated with each type of loan?

-Is there a prepayment penalty associated with the loan?

If you’re looking for a large sum of money and have plenty of equity in your home, a cash-out refinance might be the right option for you. However, if you need a smaller amount of money and can afford the monthly payments, a home equity loan might be a better fit.

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