Cash-Out Refinance VS Home Equity Line

Cash-Out Refinance VS Home Equity Line

If you want to borrow money on your home equity then you have the option. One option is cash-out refinance and the other is a home equity line of credit. However, there is a difference between the cash-out refinance and the home equity line. This article will help you to know the difference between cash out and home equity lines and choose the best one for you.

Cash-Out Refinancing

Cash-out refinancing allows new and larger financing to repay existing mortgages. When you close the loan, you pay off your existing loan and if you have the remaining money, you can use it as you wish. If cash is required or for competitive interest rates, they apply for cash-out refinancing. Cash-out home refinancing has closing costs that you have to pay.

Home Equity Line of Credit

The home equity line of credit is known as the second mortgage. Because even after having the first mortgage, the borrower can apply for the second mortgage. You will be able to withdraw money through a certain draw period.

Loan terms

Cash-out refinancing

It allows you to pay off your previous mortgage. It is a different type of loan with different maturity for repaying your existing loan. At the end of the loan term, you will have to pay the principal and interest rate through monthly payments.

Home Equity Line of Credit (HELOC)

You can take a second mortgage on your home equity even if you have an existing mortgage. Its maturity and loan repayment schedule are different from the first mortgage.

How to get cash

Cash-out refinancing

The rule of thumb for this program is that it will pay you by lump sum. Your existing mortgage is repaid first with the loan cash. In addition, other expenses incurred on the loan such as closing costs, insurance costs, and property tax are paid.

Home Equity Line of Credit (HELOC)

This program has a fixed draw period of about 10 years. In the meantime, you can withdraw the money available on your credit card. Pay monthly during this period where both interest and principal are included. At the end of the draw period, you will have to repay the loan. You will no longer be able to withdraw funds from your credit card, but you will have to repay the loan. The time to pay the arrears is 20 years.

Interest rates

Cash-out refinancing

Cash-out refinancing offers two types of interest rates, one is a fixed-rate mortgage and the other is an adjustable-rate mortgage. In this case, you can take a mortgage that suits your situation by negotiating with your lender.

Home equity line of credit

HELOC offers variable interest rates. It varies based on the index. So whenever the index goes up or down, your interest rate goes up and down.

Closing costs

Cash-out refinance

The closing cost of cash-out refinance works the same as conventional loans.

Home equity line of credit

HELOC has no closing costs even if it does have a very small amount.

Where are the similarities and differences between Cash-Out Refinance and HELOC?

Similarities

• To qualify for both loans, the loan-to-value ratio must be 90% or less.
• You can spend money as needed. It is recommended that homeowners use the money borrowed against the home for home improvement or loan repayment at the highest interest rate.
• Since your home is mortgaged, you may lose your home through foreclosure if you do not pay on time or default on the loan.

Differences

• Cash-out refinancing is better than HELOC because it has lower interest rates.
• Cash-out refinancing is a new mortgage, so its closing costs are high. On the other hand, the closing costs of a home equity line of credit are relatively low.
• Cash-out refinance is the largest loan, while HELOC is known as the second mortgage.

Every day, a Cash-Out Refinance helps a homeowner lower their monthly mortgage payment. Complete your Cash-Out Refinance Check-up today at Cash-OutRefinance.com and Middle Credit Score Check-up at MiddleCreditScore.com.