Home Equity Loans vs. Cash-Out Refinance

Equity is the difference between your home’s value and your mortgage. For instance, if you have a home that’s worth $300,000 and your mortgage is $250,000 that means you have $50,000 of equity in your home, which is like having $50,000 in a savings account. A cash–out refinance allows you to access that equity. So if you need $10,000, you can refinance your mortgage so that you owe $260,000 and the lender then gives you $10,000 in cash at closing.

With a home equity loan, you keep your original mortgage and take out a second mortgage for the amount of equity you are tapping into. Unlike a cash-out refinance, a home equity loan is a whole separate mortgage based on the amount of equity you are tapping into.

Since every homeowner's situation differs, your best option will depend on your specific circumstances. ZeroPoint Lending has several options to choose from. When you compare home equity loans and cash-out refinance, there are four major things you should consider in order to determine what's best for you:

Speed

Speed could be a crucial factor for some homeowners. How fast do you need the money? Home equity loans close significantly faster than a refinance, in some cases in as little as five or six days.

Cost

Home equity loans typically require minimal costs and fees. Refinancing, on the other hand, may carry higher loan fees and possibly points.

Rate

Since a home equity loan is a second mortgage, it usually has a higher rate compared to a cash-out refinance. If you already have a great rate on your mortgage, it may be a smart idea to get a home equity loan, regardless if it has a higher rate, rather than refinance and lose the low rate you already have on your first mortgage.

Term

Refinancing is usually limited to a 15 or a 30 year term. A home equity loan, in contrast, will offer you more flexibility. This will allow you to take advantage of a shorter term loan which will reduce your overall interest costs.

A ZeroPoint Lending mortgage expert can help you compare a cash out refinance or a home equity loan. With your own personal mortgage expert to guide you, you'll have no trouble determining which type of loan is right for you.