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:
- 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.
- If current rates are lower than your mortgage rate, then a cash-out refinance loan could lower your mortgage interest rate.
- 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.
- 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.
- 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.
- Cash-out refinance loans offer a reliable lump sum pay out, instead of a risky, varying line of credit.
- 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).
- 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.
- 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!
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).