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Cash-Out Refinance vs. Home Equity Loan: Weighing Your Options

By  PDX Direct  ·  2 minute read

Comparing cash-out refinance and home equity loans? Not sure which is best for you? This article looks at the pros & cons of each option. Read it today to learn how to weigh your options and make an informed decision.

Cash-Out Refinance vs Home Equity Loan: Weighing Your Options

Buying a home is an exciting and rewarding undertaking. After you become a homeowner, you may find yourself wanting to make improvements to the property. But for many, financing those improvements can be a challenge. Before deciding which option is best for you, it's important to understand the differences between a cash-out refinance loan and a home equity loan so you can make the best decision.

Cash-Out Refinance Loan

A cash-out refinance loan refinances your current mortgage, allowing you to borrow more money over a new loan term. With this type of loan, you'll be able to “cash-out” some of your home's built-up equity, which is the difference between the current value of your home and the amount that you owe. You can use the proceeds as you wish, and since you're replacing your existing mortgage, you can often keep the same interest rate, loan term, and monthly payment as you had before. The benefits of a cash-out refinance loan include:
  • You can refinance a longer repayment period, making your monthly payments more affordable.
  • You may be able to lower your interest rate.
  • You can use the money for any purpose.

Home Equity Loan

A home equity loan is a separate loan from your current mortgage. This type of loan is secured by the equity in your home and is used for a specific purpose, such as funding home improvements. You'll pay the loan back over a specific period of time with fixed monthly payments, and because it's secured by your home, you may be able to get a lower interest rate than a traditional loan. The benefits of a home equity loan include:
  • Money is released upfront for large expenses, such as home improvements.
  • Lower interest rates than unsecured loans.
  • Repayment terms are generally longer, up to 30 years.

Weighing Your Options

When deciding between a cash-out refinance loan and a home equity loan, it's important to consider your situation and what makes the most financial sense for you. Make sure to take into account the interest rates, loan terms, closing costs, and fees associated with each option. Also, make sure to compare the different lenders' rates to ensure you get the best deal. Ultimately, the right choice will depend on your specific goals and financial situation. If you're looking to lower your interest rate and consolidate debt, a cash-out refinance loan may be the right choice. If you're looking for money upfront to fund a special project, a home equity loan may be the way to go. No matter which option you choose, it's important to do your research and read the fine print before choosing. A thorough understanding of the terms of your loan will ensure that you make the best decision for your financial future.

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