Already own your home but not sure what direction you want to go about your equity you’ve gathered?
Refinancing, a home equity line of credit (HELOC), and a cash-out refinance are all ways to access the equity in your home, but they work differently and have different benefits and drawbacks.
1. Refinancing: Refinancing involves taking out a new mortgage to replace your existing mortgage. The new mortgage may have a lower interest rate, which can lower your monthly payments, or a shorter term, which can help you pay off your mortgage faster. Refinancing is a good option if you want to save money on your monthly mortgage payments or pay off your mortgage sooner.
2. Home Equity Line of Credit (HELOC): A HELOC is a line of credit that allows you to borrow against the equity in your home. It works like a credit card, with a credit limit based on the value of your home. You can borrow as much or as little as you need, and you only pay interest on the amount you borrow. HELOCs are a good option if you need access to funds over a longer period of time and want the flexibility to borrow as needed.
3. Cash-out Refinance: A cash-out refinance involves taking out a new mortgage that is larger than your existing mortgage and using the difference between the two loans to access cash. This option can be a good way to consolidate debt or make home improvements, but it will increase the amount you owe on your mortgage, and you may end up with a higher monthly payment.
In summary, refinancing is ideal if you want to lower your monthly mortgage payments or shorten the term of your mortgage, while a HELOC is best if you need flexible access to funds over a longer period of time. A cash-out refinance is a good option if you want to access a large amount of cash to consolidate debt or make home improvements, but be aware that it will increase the amount you owe on your mortgage. It is important to weigh the benefits and drawbacks of each option and consult with a financial advisor or mortgage professional before making a decision.