Cash-Out Refinancing
- Your existing mortgage is refinanced for a higher overall amount using some of the accumulated equity in your home.
- The result is one loan and one loan payment.
- Choose from fixed or variable interest rate loans.
- Get cash and spread the payments out over a longer term.
- A lower interest rate may be possible compared to what you might get with a home equity loan.
- Basically, cash-out refinancing is a replacement of your first mortgage.
Tip to remember - A cash-out refinance is similar to a regular refinance in that it replaces your existing mortgage with a new loan. They differ in that you borrow more than just the amount required to pay off your current mortgage. The amount between your current balance and your new loan amount is taken from your home equity and given to you as a check at closing (less any fees involved in the refinance, of course).
Home Equity Loan
- This is a separate loan on top of your existing mortgage.
- You can borrow all or just part of your home's equity – the difference between your mortgage balance and your home's estimated market value.
- You receive the payment up font in a lump sum loan at the time of closing.
- A traditional home equity loan is a closed-end second mortgage with a fixed term, fixed interest rate and fixed monthly payment (although adjustable rate home equity loans are also available).
- In today’s market, home equity loan guidelines are fairly tight for approval with most lenders requiring a credit score higher than 680, and a combined loan-to-value ratio of the first and second mortgages in the 80-90% range. Homeowners with high credit scores above 720 will qualify for the best home equity loan rates.
- Long term interest rates are lower today than they were one year ago. These home equity loan rates are very attractive in any market.
- If you are thinking about a home equity loan you should do it as soon as possible – the national trend toward declining home values means you will qualify for less money today than you might have a year ago.
Tip to remember - A home equity loan allows you to borrow up to 100% of the value of your home. This type of loan is suitable when you need money for a specific, one-time purpose, such as buying a car or a major renovation. A home equity loan is also more appropriate for someone on a fixed income that needs consistency of a monthly payment.
Home Equity Line Of Credit (HELOC)
- Like a home equity loan, this is also a separate loan on top of your existing mortgage.
- You can borrow all or just part of your home's equity – the difference between your mortgage balance and your home's estimated market value.
- A HELOC is a revolving credit line with as little as zero drawn up front. It’s like a credit card in that you use what you need (by writing checks or using a debit card) and can repay all or the minimum payment each month.
- HELOCs’ rates and payments are variable and can change.
- You only pay interest on the money you actually use and you can access it whenever you want without having to reapply.
- Just like with home equity loans, the guidelines are fairly tight for approval with most lenders requiring a credit score higher than 680, and a combined loan to value of the first and second mortgages in the 80-90% range. Homeowners with high credit scores above 720 will qualify for the best rates.
- Generally, a HELOC is a good choice to meet ongoing cash needs, such as college tuition payments or medical bills. Similarly, those whose cash flow is not level throughout the year – such those who are self-employed, paid by commission or dependent on an end of year bonus – will enjoy the flexibility of a HELOC.
- Long term interest rates are lower today than they were one year ago. These are very attractive rates in any market.
- If you are thinking about a HELOC you should do it as soon as possible – the national trend toward declining home values means you will qualify for less money today than you might have a year ago.
Tip to remember – Just like home equity loans, you can borrow up to 100% of the value of your home with these loans. However, HELOCs are better suited for folks who need flexibility in their monthly cash flow or just want to have an emergency line of credit for unexpected expenses.
In the end, all three options – cash-out refinancing, home equity loans, and HELOCs – offer different benefits and work best in different situations. Refinancing usually makes sense when you’re looking for a lower overall rate, a longer term and/or like the easier qualification guidelines. In other instances where you need a short-term cash infusion, as well as flexibility in use and term, home equity loans and HELOCs are often a better choice.
Regardless of which situation you’re in, just give us a call at 1-800-734-REFI and we’ll make sure you pick the option that best fits your needs.
