If you’ve paid off a good amount of your mortgage, you likely have home equity. Home equity is the difference between your home’s value and what you owe. This equity can be used as collateral to secure funds for home improvement projects and living expenses. But with so many options, which is right for you?

HELOC or Refinance Cash-Out?

A home equity line of credit (HELOC) is a second mortgage secured with your home equity. Refinancing, on the other hand, is a new loan entirely. Each has its benefits and drawbacks, explored below.

HELOC advantages

HELOCs are revolving credit lines that work like credit cards. Your credit limit is determined by how much equity your home has. Unlike credit cards, HELOCs have an initial draw period during which you only pay for what you use. This interest-free period can last for up to ten years before your repayment period begins.

HELOC considerations

With HELOCs, it’s important to consider if variable payments are doable for you. Because you can use different monthly amounts, it can be challenging to track what you owe.

Refinance advantages

To refinance your home, you take out a higher loan to replace your previous mortgage and receive a lump sum payment of the difference between the two. Refinancing provides a lot of money at once but also leads to longer terms of paying interest. 

Refinance considerations

Before refinancing your home, there are many items to consider, including how long you plan to stay there and how much you still owe. A HELOC is a better option if you don’t plan to stay in your home for long.

If you’re considering a refinance cash out or HELOC, Horizon Bank loan advisors are here to help. Call 888-873-2640. 

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