HELOC vs. Cash-Out Refinance

May 31
Category | General


The value of most homes has been on the rise. If you’re in need of cash to replace the roof, update the kitchen, pay for education, or help finance a new place for the kid who’s back from college and living rent-free in the basement, your home's rising value may provide the leverage you need to make it happen!

When homeowners inquire about accessing cash from their homes, they’re often thinking about getting a Home Equity Line of Credit (HELOC). However, there’s another way homeowners can get cash from their home and that’s by choosing a cash-out to refinance instead.

In the current environment, many people want to keep the great interest rate they already have on their home loan, so they automatically choose a HELOC over a refinance. But wait—there’s a big difference that can make the benefits hard to compare at a glance. We’ll explain.

Is it better to use a Home Equity Line of Credit or to do a "Cash-Out" Refinance despite a higher interest rate?

When we suggest they look into refinancing instead, even if it’s at a higher rate than they pay on their current mortgage, they stop listening and consider us crazy! But hear us out…

Believe it or not, there are times when a higher fixed rate can be a great idea and a far safer choice. The simple reason is that rates on HELOCS are usually adjustable and based on the prime rate as influenced by the federal reserve board. Rates have been low for years, but they typically move in cycles. In the past, they’ve been anything but low peaking at more than 20%.

HELOC vs. Cash-Out Calculator

Not everyone loves math, but a little of it can be your friend when you want to use your money wisely. Besides, we’re doing the hard work for you! Using this calculator, you’ll be able to see how taking cash out with a fixed rate loan compares with using an adjustable rate HELOC.

Simply plug in the numbers for the amount of cash you might like for both a HELOC and again as an amount over your current loan balance, set the rates, and there you go – an instant payment comparison.

Don’t just look at the comparison today. The real benefit of a fixed rate is not always obvious in the beginning. To see what happens if rates rise further tomorrow, move the slider on the HELOC loan and watch how high that payment can climb.

HELOC loans have their place and so does the peace of mind that can come from a fixed rate loan with a principal and interest payment that will never change.

Go ahead, give it a try!


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