Whether you are looking to make home renovations, pay off debt, or start a college fund for your children, accessing the equity in your home is often the most beneficial option. The first question to ask yourself is whether you need a lump sum of cash at once or access to a reserve of cash over a longer period of time. Another thing to consider is how much you are willing to pay in closing costs in order to achieve these goals. Each type of home equity loan comes with a unique set of benefits.
There are three ways to obtain cash through refinancing:
A simple way to look at a Cash-Out Refinance is that you are taking out a loan with an amount greater than your current mortgage, and keeping the difference for your own personal use. With this method, you are refinancing any existing mortgages while extracting additional equity. You will have one monthly mortgage payment, and often, the interest charged on this loan is tax deductible.
A Home Equity Loan is an additional loan from your current mortgage. Usually, this “second mortgage” has a fixed interest rate, and you receive the money as a lump sum with payments amortized over the term of the loan. The rates are often higher on a Home Equity Loan than a Home Equity Line of Credit because you are receiving the security of a fixed rate. With this loan, you will have multiple monthly mortgage payments (one on the existing first mortgage and one on the new second mortgage), but they will remain the same throughout the term of the loans.
HELOC stands for Home Equity Line of Credit and is a more flexible way to receive funds over time instead of in one lump sum. A HELOC functions like a large credit card using the equity that has already been paid into your home. While the initial interest rate is often lower than a Cash-Out Refinance or Home Equity Loan, the rate on a HELOC is variable and can go up and down over time. However, you are able to draw money from the credit line when needed and only pay interest on the outstanding balance.
Call me today to set up an appointment! I would love to review your finances and help you determine if a home equity loan is right for you.