Cash-Out Refinance vs Home Equity Line of Credit (HELOC)
In many cases, accessing home equity offers an option for accomplishing more of your financial goals. There are options for tapping into your home's equity, like a cash-out refinance or a Home Equity Line of Credit to help you do so, and there are some differences between the two you should know.
Cash-Out Refinance Overview
Cash-Out Refinance vs Home Equity Line of Credit (HELOC)
A Cash-Out refinance is a way of tapping into the equity you have built up in your home as it has increased in value over time, and through your monthly payments. It involves retiring your current mortgage by taking out a new one, possibly with different terms, and for an amount that is larger than what you currently owe.
The excess funds left over after paying off your old loan's outstanding balance and closing costs are then paid out to you in cash shortly after closing.
Using a Home Equity Line of Credit (HELOC) gives a borrower access to a line of credit based on the available equity in a home and functions somewhat like a revolving credit card. It requires a 2nd monthly payment and features an adjustable interest rate. That means if interest rates go up, your monthly payment would also increase.
A Cash-Out refinance can have a fixed interest rate, so you could have a fixed mortgage payment for the life of the loan. With a HELOC, you have a line of credit with the ability to make withdrawals and a fluctuating interest rate. Your HELOC payment depends on how much you borrowed and the interest rate at the time you make your HELOC payments.
Cash-Out Refinance Benefits
Why Cash-Out refinance?
Cash-Out refinancing is usually more attractive to those homeowners who have too much of their wealth tied up in their home and don't have the cash assets on hand that they would like. Homeowners also tend to consider cash-out refinancing when interest rates are low.
If you've been thinking about getting a Home Equity Line of Credit, consider a Cash-Out refinance to access your home equity. You may want to use some of the money invested in your home to eliminate other debts, like credit card balances or to contribute to your children's college tuition bills. Perhaps you're looking to self-finance home improvement expenses or pay medical bills. You may even prefer to use it to fund vacation homes, a rental property, or start a business.
It should be noted that there is a big difference between using money from cash-out refinancing to pay for home renovations or debt consolidation, which are more of an investment in your home and can potentially increase the value, versus using the funds to buy a new car which has no return on your money.
A Cash-Out refinance could help you:
- Access a lump sum of cash
- Pay off high interest credit card debt
- Pay off a car loan
- Pay student loans
- Pay off medical bills
- Finance a wedding
- Take a vacation
- Make home improvements
- Pay for elderly care
- Buy an investment property
- Pay for college
- Pay down debt and improve your debt-to-income ratio
- Get a lower interest rate
- Improve your financial situation
- Have simple interest instead of compound credit card interest
Cash-Out Refinance Requirements
What loan types are eligible for Cash-Out refinance?
All Types!
Including Conventional, Jumbo, FHA, VA, and Home Equity Lines of Credit - check with a Loan Officer for your personal consultation.
Home Improvement
A Home Improvement loan is a type of Cash-Out refinance that allows you to use your home's equity to finance improvements or modic
- Removal of lead-based paint
- Decks, patios, porches
- HVAC systems (heating and air conditioning)
- Basement completion
- Basement waterproofing
- Updates to a septic or well system
- New kitchen appliances
- Washer and dryer upgrades
- Roofs, gutters, and downspouts
- Plumbing and electrical upgrades
- Minor kitchen or bathroom remodeling
- Installing carpet, tile, or wood flooring
- Restoring windows or doors
- Weather stripping and insulation upgrades
- Disability improvements
- Energy efficient upgrades
- New siding
- Building a home addition
Cash-Out refinancing can be especially attractive to homeowners who qualify for VA-backed loans. A VA lets you take out up to the full amount of your existing equity.
Call today & get your No Cost, No Obligation quote in a few minues.
- Apply
- Approval
- You could get cash within 3 days of loan funding
Whether you need help with real estate investing or loans for first time home buyers, we'll get to know your personal situation to help you meet your goals.
Check out our refinancing calculator to get started with the process today.
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