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Cash-out refinance vs. Home equity loan



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A cash-out refinance and a home equity loan are two different ways to access the equity in your home, but there are some key differences between the two options:

  1. Loan terms: A cash-out refinance replaces your existing mortgage with a new mortgage that has a higher principal balance, while a home equity loan is a second mortgage that is taken out in addition to your existing mortgage. Cash-out refinances typically have longer loan terms than home equity loans, which can affect the amount of interest you pay over time.
  1. Interest rates: Cash-out refinance rates are typically lower than home equity loan rates because they are secured by your home. However, you may be required to pay higher closing costs for a cash-out refinance than for a home equity loan.
  1. Loan amount: With a cash-out refinance, you can borrow up to 80% of your home’s equity, while with a home equity loan, you can typically borrow up to 90% of your home’s equity. However, the actual amount you can borrow will depend on factors such as your credit score, income, and the value of your home.
  1. Repayment: With a cash-out refinance, you will have a single mortgage payment to make each month that includes both your original mortgage balance and the additional funds you borrowed. With a home equity loan, you will have a separate monthly payment to make in addition to your existing mortgage payment.

Ultimately, the best option for accessing the equity in your home will depend on your specific financial situation and goals. A cash-out refinance may be a good option if you are looking to refinance your mortgage at a lower interest rate and access additional funds at the same time, while a home equity loan may be a better option if you need to borrow a smaller amount and want to keep your existing mortgage in place.

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