A Home Equity Line of Credit vs. a Cash-Out Refinance: How Do They Compare?

Do you need to tap into your home’s equity to finance a big purchase or consolidate debt? Are you comparing a Home Equity Line of Credit (HELOC) to refinancing your mortgage and taking cash out?

Here are 8 comparison points to consider for a Cash-Out Refinance Loan from Freedom Mortgage:

  1. Unlike a line of credit’s varying rates and increasing payments, cash-out refinance loans offer a fixed interest rate that keeps your payment steady.
  2. If current rates are lower than your mortgage rate, then a cash-out refinance loan could lower your mortgage interest rate.
  3. Cash-out refinance loans typically offer lower fixed rates (compared to adjustable HELOC rates), and may lower the total amount you pay by the end of your loan’s term.
  4. Your loan could consolidate high-interest debt (such as from credit cards) leaving one stable, lower interest monthly payment so that you can improve your credit score and debt profile.
  5. High credit and income requirements associated with HELOCs exclude many borrowers. Cash-out refinance loans could be easier to qualify for, and once secured, may help your credit rating if you’re able to pay a lower, stable monthly payment on time.
  6. Cash-out refinance loans offer a reliable lump sum pay out, instead of a risky, varying line of credit.
  7. Under the new tax law, Tax Cuts and Jobs Act, taxes on cash-out refinance loans may remain tax deductible, while the taxes on HELOCs may no longer be (contact your tax advisor for more information).
  8. You could qualify for a cash-out refinance loan that you could use freely for big expenses including such as home improvements, school tuition, medical bills, or even weddings.
  9. Consolidate credit card or other installment/revolving debt.

Contact us today to discuss how a Cash-Out Refinance could benefit you and your specific needs today!

This article has 1 Comment

  1. One thing to also consider in the HELOC versus cash-out refinance comparison is how much money you are looking to access. Given generally higher costs to refinance, it may be less costly to use a HELOC if the amount of money you are looking to extract from your home is small. After all, it doesn’t make sense to spend $5,000 on a refinance to free $15,000 in equity.

    Another item worth considering is that many lenders offer HELOCs with a “”loan within a line”” feature. This allows you take funds you’ve borrowed and place then in a fixed-term, fixed-rate repayment plan. This can protect you from rising variable interest rates but will likely be at an interest rate above what is available for a cash-out refinance (however the loan amount of the fixed portion is usually small so the cost is limited).

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