Cash-Out Refinance vs. Home Equity Loan


Let's say you have a home that's worth $150,000 and you owe $100,000 on the mortgage. That means you have $50,000 of equity in your home, which is like having $50,000 in a savings account. A cash-out refinance allows you to access that equity. For instance, if you need $10,000, you can refinance your mortgage so that you owe $110,000 and the lender then gives you $10,000 in cash at closing.

With a home equity loan, you keep your original mortgage and take out a second mortgage for the amount of equity you are tapping into.

Since every homeowner's situation is different, your best option will depend on your specific circumstances. Whether you choose a cash-out refinance or a home equity loan, there are four things to consider:

Speed
How fast do you need the money? Home equity loans close considerably faster than a refinance – usually in as little as five days – that might be important to you.

Cost
Home equity loans typically require minimal fees. Refinancing, on the other hand, may carry higher loan fees and possibly points.

Rate
Because a home equity loan is a second mortgage, it typically has a higher rate than a cash-out refinance (a reflection of its higher risk to the lender). But if you already have a great rate on your mortgage, it may be worthwhile to get a home equity loan – even at a higher rate – rather than refinance and lose the low rate you already have on your first mortgage.

Term
When refinancing, you are generally limited to a term of 15 or 30 years. With a home equity loan, you have more flexibility and can take advantage of a shorter term – greatly reducing your overall interest costs.


If you have additional questions about cash-out refinancing or home equity loans, contact me or fill out a convenient online form to get pre-qualified.