Home Equity or Refinance. Which is Best for you?
How do you choose the right loan? Depending on your financial goals, you may want to take the tax benefits of a home equity loan over the lower payment of a cash-out refinance. But how do you know? To make a better decision between the two loans, take a look at the comparison
chart shown below.
What is a Cash-Out Refinance
Loan?
A cash-out refinance loan is when you refinance your current mortgage to lower your rate and/or payment, and then take out additional cash for home improvements, paying off credit cards, or using the cash for any purpose you like. In some cases, you can have a lower monthly payment and rate even when you pull some cash-out. The additional cash taken out of your mortgage is based on the equity in your home. For instance, if your home is valued at $260,000 and your current mortgage balance is $175,000, the equity in your home is $85,000. You can then borrow a portion of this equity for
any purpose you like.
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What is a Home Equity Line of Credit?
A Home Equity Line of Credit (HELOC) is a variable rate loan where the interest rate and annual percentage rate (APR) can move up or down, depending on the Prime Rate published daily in the Wall Street Journal. It's like having ready cash when you need it for a defined period of time. As you make payments towards the balance you've borrowed, your available credit will increase. You can use the cash at your convenience, and only pay for what you spend. Also, interest may be tax-deductible, but you want to check with your tax consultant to be sure.
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What is a Home Equity Installment Loan?
A Home Equity Installment Loan (HEIL) is a fixed rate loan. That means the interest rate and annual percentage rate (APR) will stay the same for the life of your loan. The product is very similar to an auto loan, where you make the same monthly payment for the entire loan. Interest on this may be tax-deductible as well, so talk with your tax advisor to find out more.
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| Option 1:
Keep Current Mortgage & Get a Home Equity Line of Credit
|
| Current Mortgage
|
$150,000 |
7.00%/7.25% |
$997.95 |
| HELOC |
$50,000 |
5.25%/6.00% |
$218.75 |
| TOTAL |
$200,000 |
|
$1,216.70 |
| Option 2:
Refinance Cash-Out
|
| Refinance C/O
|
$200,000 |
6.25%/6.85% |
$1,031.45 |
| Option 3:
Keep Current Mortgage & Get an Equity Installment Loan |
| Current Mortgage
|
$150,000 |
7.00%/7.25% |
$997.95 |
| HEIL |
$50,000 |
7.55%/7.89% |
$314.58 |
| TOTAL |
$200,000 |
|
$1,312.53 |
|
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