Cash Out Refinance Vs Home Equity Loan - What's the Difference?


The end of the second quarter of 2010 is almost at an end and mortgage interest rates are currently near historic lows. This is very encouraging for anyone looking to secure a new mortgage or to refinance an existing mortgage at a lower interest rate.

Now might be a great time to consolidate some high interest bearing credit card debt, or to invest in a new addition to your home, or pay for an education. What ever the case may be, if you have equity in your home, there is a way to access that cash and spend it how you choose.

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Generally speaking, there are two options to tap the equity in your home: cash out refinancing or a home equity loan. To determine which option is best for you, it is important to know the differences between the two options.

Cash out refinancing differs from a home equity loan in a few ways:

A cash-out refinance is a replacement of your primary mortgage A home equity loan is a separate loan in addition to your primary mortgage Interest rates on a cash-out refinance are often times lower than what you are charged for a home equity loan, although not always When you do a cash-out refinance, you will pay closing costs Generally, you are not charged closing costs when you secure a home equity loan

Home equity loans are generally better under the following circumstances:

If you simply want to access a small amount of your available equity You need access to an open line of credit You plan to pay off the home equity loan before your primary mortgage loan

A quick way to determine whether or not you should refinance is to compare your expected interest rate to your existing one. It never makes sense to refinance a higher amount at a higher rate. You should also pay attention to what you will be charged in closing costs if you decide to do a cash-out refinance since closing costs can often add up quickly, making the cost of refinancing too much to justify.

Work with a lender you trust and ask them for advice given your specific situation. They will be able to help you determine all of the associated risks and benefits so you can make an informed and comfortable decision.

Follow this link and find a reputable lender online to help with a cash-out refinance or a home equity loan.


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