Mortgage Refinance: Home Equity Loan vs. Cash Out Refinance
As a homeowner, you have instant cash at your disposal. You can either get a home equity loan or a cash out refinance. Both options have their advantages and disadvantages, and deciding between the two can be difficult. This article makes it easier by exploring both the pros and cons of a home equity loan vs. cash out refinance.
A cash out refinance allows you to refinance your current mortgage for more than you owe and pocket the difference. For example, if you owe $60,000 on a house that is worth $110,000, you can refinance the mortgage for $110,000 and keep the extra $50,000. A home equity loan, on the other hand, is like a second mortgage. You keep your existing mortgage and take out a second loan.
Both options borrow from the equity built up in your home, but this is where the similarities end. To determine which one is best, you will need to evaluate your individual situation and financial circumstances. Here are four things that will help you decide between a home equity loan vs. cash out refinance:
Cost
While a home equity loan usually has minimal cost to the borrower, a cash out refinance may carry high loan fees and points.
Rates
Though rates are low for either option, the rates on a cash out refinance are typically lower than the rates on home equity loans.
Terms
Home equity loans are relatively flexible. You can get short terms or long terms. With a cash out refinance, you are generally allowed only two term options: 15 years or 30 years.
Cash in Hand
If you need money immediately, a home equity loan can provide you with cash in as little as five days. A cash out refinance is also quick, but tends to take longer.