Many homeowners need extra cash to complete home improvement projects, pay for their children’s education or consolidate credit card debt. Often, these homeowners wonder which option is better: a traditional refinance or a home equity loan.
Refinancing or home equity loans
Home equity loans offer a great way to tap into the equity in your home and turn it into cash without having to do a full refinance or pay the high closing costs associated with it.
Home equity loans are available in the form of lines of credit and regular loans. A home equity loan works like a standard mortgage. You take out the loan, get your money and make monthly payments to pay it back.
A HELOC or home equity line of credit works like a credit card. You have a line of credit that you can use for whatever you want and you spend it as you need it. Many HELOCs also allow you to pay only the interest, making your payments less expensive.
The only downside to these types of loans is that they do not offer the best home mortgage refinance rate compared to a traditional mortgage.
Standard Mortgage Refinance
Standard mortgage refinancing will also allow you to tap into the equity in your home and turn it into cash. It offers the best home mortgage refinance rate and allows you to take advantage of terms up to 30 years.
Closing costs are much higher, but can often be built right into the loan, reducing costs. These loans are typically used for large cash flow needs.