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Are you looking into refinancing your mortgage?
Are you familiar with the details of a cash out refinance vs HELOC (home equity line of credit)? Are you concerned about making the right financial decision?
Not only do you have to decide if refinancing makes good financial sense, but you must also decide which approach is best.
These are big decisions that can stress you out — but only if you don’t have the right information on your side.
My Perfect Mortgage will help you compare the finer details of a cash out refinance vs. HELOC. With this information, you can then decide which path is best for you.
Making an informed and confident decision starts with understanding the basic definition of a cash out refinance and HELOC.
A cash out refinance replaces your original loan with a new loan that’s more than what you currently owe. The difference between the current loan amount and the new loan amount provides you with cash. That’s where the name “cash out refinance” comes from.
For example, if your current mortgage balance is $200,000 and your new loan is for $300,000, you’re left with $100,000 in cash to do what you please (more on this below).
A HELOC is different in the way that you receive all the cash at once.
Instead of being left with one mortgage, you have two. With a home equity line of credit, you can borrow money as needed (with no obligation). As you borrow money, you’re required to make a minimum monthly payment during the repayment period.
There are both pros and cons of a cash out refinance. By comparing all of these, you can decide if this is a product you want to consider.
A home equity line of credit is a unique product with various pros and cons. These include the following.
Now that you understand the pros and cons of a cash out refinance vs HELOC, it’s time to turn your attention to the differences and similarities.
With both a cash out refinance and HELOC, you’re relying on the equity in your home. Without this, neither of these products is available to you. Other similarities include:
On the flip side, there are various differences between the two. These include but are not limited to:
It’s common to have questions as you compare a cash out refinance vs. HELOC. By answering these questions, you’ll better understand what each one offers and how to best proceed.
You may save money with a cash out refinance if your new interest rate is lower than your current rate. For instance, if your current mortgage has a rate of 5% but you qualify for 3% with a cash out refinance, you’ll save money in interest over the long run.
There’s no limit as to how you can use the money from a cash out refinance. From home repairs to education expenses to traveling the world, the decision is yours.
Cash out refinance closing costs are similar to those of buying a new home with a conventional mortgage.
Yes, this is also known as a second mortgage, much in the same way as a home equity loan.
Just the same as any mortgage loan, if you don’t repay a HELOC the lender has the legal right to repossess your property.
Home equity lines of credit generally have a variable interest rate. So, the monthly payment you pay today is not likely to be the same in the future. It could be higher, it could be lower. This is a risk you must be willing to take.
If you’re in search of cash and are willing to use the equity in your home to get it, a cash out refinance or HELOC could be the right answer.
At My Perfect Mortgage, we can help you find the refinancing product that’s best for you, your home, your goals, and your financial circumstances.
Get started with My Perfect Mortgage today!
Photo by Ketut Subiyanto from Pexels
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.