HELOC v/s cash out refinance

When it comes to deciding between a HELOC v/s cash out refinance, one needs to consider how and when you intend to use the equity from your home, and how long you will require to pay it back. 

A HELOC is a secondary home equity loan product that is fluid in how you deadlock from it and how you pay it back. For example, if you do not have a balance, there is no payment to make. This means that you will only have to pay back some portion of the HELOC you have used at any given moment. Typically, you will be able to draw from your HELOC over 10 years. After the draw period ends, the repayment period formally begins, and you will no longer be able to withdraw from the HELOC. You will then have up to 20 years to repay the preeminent balance.

Whereas, cash out refinance may immediately increase your monthly mortgage payment obligation for the next 10, 15, or 30 years. For example, if your home is valued at $350,000 and your mortgage balance is $200,000. In this scenario, you have $150,000 of equity in your home, meaning you could refinance your $200,000 loan balance for $300,000 and will receive the extra $100,000 in a lump sum. So your new mortgage will be for $300,000, and the interest rate and monthly mortgage payment will reflect that. 

Key features of a HELOC 

Some of the key features of a HELOC are such as –

. Revolving debt to borrow and repay

. A second mortgage broker with a separate payment and interest rate

. Payments are due only on what you borrow

. Variable payments during the draw period based on your line of credit balance. Payments may also fluctuate if the HELOC has a variable rate feature including during the repayment period

Key features of a Cash out refinance

Some of the key features of a cash out refinance are such as –

. Obtain your home equity in a lump sum

. Continue with a single, refinanced mortgage payment mode

. Fixed payments

. Longer terms may be accessible (for example, a new 30-year mortgage)

As you can see, there are many key differences between a HELOC v/s cash out refinance. So, before proceeding with either option you should need to contemplate your budget to regulate what you can afford, and need to think about how and how often you will use the equity in your home.