Do you need extra cash for specific needs like home repairs or college costs? Which should you choose: a home equity line of credit (HELOC) or a mortgage refinance? Which is your best choice depends on how much money you need, how much equity you have in your home, what purpose you intend for the cash, and whether you have an FHA, VA, or other type of mortgage.
Cash-Out Refinance vs. HELOC Interest Rates
You’ll pay more interest on a HELOC than you will with a cash-out mortgage refinance. HELOCs can have interest rates two to three points higher than the best rates on mortgage refinance loans.
What is the difference between a cash-out and a straight refinance loan?
A straight mortgage refinances loan will allow you to refinance a percentage of the value of your mortgage. Mortgage refinance programs like the VA streamlined Interest Rate Reduction Refinancing Loan (IRRRL) won’t allow you to take additional cash out of the equity in your home.
A cash-out loan, which is also available as a VA and FHA loan product, and some other loan programs, lets you take cash out of your home’s value. A VA cash-out loan is a unique benefit for qualified veterans. Nearly all cash-out programs limit how much additional cash you can borrow based on your home’s value. A VA cash-out refinance could allow you to borrow additional cash up to 100% of your home’s value.
What’s a home equity loan? Is it the same as a HELOC?
A home equity loan isn’t the same as a cash-out refinance and it’s not the same as a HELOC, either. A home equity loan can be a good choice if you need money to pay for home repairs or for another one-time, essential cost. Home equity loan amounts are based on the amount of equity you have in your home.
Why choose a cash-out refinance over a HELOC?
A home equity line of credit has some benefits, which include acting as a revolving line of credit instead of a one-time cash payment. You can have varying payment amounts with a HELOC, but its higher interest rate often makes a straight one-time cash-out refinance more attractive financially. HELOCs are usually better financial deals than high-interest credit cards, however.
A cash-out refinance is going to offer you better loan terms and a more appealing interest rate than nearly all HELOC alternatives. When you’re shopping for a cash-out mortgage refinance, you can save time and compare terms from different lenders by working with an experienced mortgage refinancing professional. An experienced local independent mortgage broker may have multiple resources and lending channels allowing them to find the refinancing product that’s right for you. If you are interested in learning more about your options get in touch with us here at California Platinum Loans. We are a Local Independent Mortgage Broker shop with many niche loan products we can custom tailor to your specific situation.