HELOC vs. Cash-Out Refinance: Why Greater Flexibility and Lower Costs Make HELOC the Smarter Option

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As a homeowner, you may find yourself in need of extra cash for a variety of reasons, such as paying for home renovations, consolidating high-interest debt, or covering unexpected expenses. When considering your options for accessing that extra cash, you may be torn between using a home equity line of credit (HELOC) or doing a cash-out refinance. While both options involve tapping into your home's equity, there are some compelling reasons why a HELOC may be a smarter financial decision than a cash-out refinance.

LOWER COSTS

One of the biggest advantages of a HELOC is that it typically involves lower closing costs than a cash-out refinance. A cash-out refinance involves replacing your existing mortgage with a new one that is larger than your current balance, which means you'll have to pay closing costs on the entire loan amount. Additionally, a HELOC may have lower interest rates and fees than a cash-out refinance, making it a more cost-effective option overall.

GREATER FLEXIBILITY

Another advantage of a HELOC is that it offers greater flexibility than a cash-out refinance. With a cash-out refinance, you're essentially taking out a new mortgage, which means you'll be locked into a fixed payment schedule for the life of the loan. With a HELOC, on the other hand, you can access your credit line as needed and only pay interest on the amount you borrow. This means you can use your HELOC to cover smaller expenses or make payments as needed, without committing to a long-term payment schedule.

KEEP YOUR CURRENT LOW RATE!

If you swap your existing low-interest mortgage for a cash-out refinance with a higher interest rate, you could end up paying more in the long run, including higher monthly payments. On the other hand, a home equity line of credit (HELOC) enables you to keep your primary low-interest mortgage and still access your home's equity for cash, which you can use for various purposes such as home renovations or debt consolidation. In the current interest rate climate, a HELOC is the preferred method for tapping into home equity.

IMPORTANT: This informational is educational in nature only. Loan product availability and qualification requirements are constantly changing. If you'd like to learn more about a product, please contact on our our highly qualified loan officers.