Deciding Between Cash-Out Refinance vs. Home Equity Loans vs. Second Mortgages
When you’re trying to access the equity in your home, you have a few different options. You can get a cash-out refinance, a home equity loan, or a second mortgage. But what are the key considerations you should take into account when you’re trying to decide which route to go?
Cash-Out Refinance vs Home Equity Loan vs Second Mortgage: The Pros and Cons
When you’re trying to figure out the best way to access the equity in your home, it’s important to consider all of your options. Should you get a cash-out refinance, a home equity loan, or a second mortgage?
There are pros and cons to each option, and the best way to make a decision is to understand the key considerations involved in each one.
Cash-Out Refinance
A cash-out refinance is when you take out a new loan to replace your existing mortgage and then use the extra cash to pay off other debts or make home improvements.
Pros:
-You can usually get a lower interest rate on your new loan than you would with a home equity loan or second mortgage.
-You only have to make one monthly payment.
-You may be able to deduct the interest on your loan from your taxes.
Cons:
-You may have to pay private mortgage insurance (PMI) if you don’t have a lot of equity in your home.
-You may have to pay closing costs again.
Home Equity Loan
A home equity loan is when you borrow money against the equity in your home. It’s like a second mortgage, but you usually get a lower interest rate because the loan is secured by your home.
Pros:
-You can usually get a lower interest rate than with a unsecured loan.
-The interest on your loan may be tax-deductible.
Cons:
-You’ll have two monthly payments (your mortgage and your home equity loan).
-If you default on your loan, you could lose your home.
Second Mortgage
A second mortgage is a loan that’s secured by your home, just like a home equity loan. But, unlike a home equity loan, a second mortgage is taken out after your primary mortgage.
Pros:
-You can usually get a tax deduction for the interest you pay on the loan.
Cons:
-You’ll have two monthly payments (your mortgage and your second mortgage).
-If you default on your loan, you could lose your home.
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