If you are a homeowner and find yourself in need of some extra cash, one option is to access the equity you already have in your home. There are different ways you could choose to tap into that equity: you might consider refinancing your loan to take out cash, or it might make sense to instead take out a Home Equity Line of Credit (HELOC).
Do I Refinance or Take Out a HELOC?
Our bankers are often asked which option is the better choice. The answer is, “It depends.” The determination about whether a cash-out refinance or a HELOC is best for you is really a case-by-case determination and will depend on several factors including:
- How much you want to borrow
- How much equity you have in your home currently
- Your current mortgage interest rate
- What type of terms you are looking for (i.e. fixed vs. variable)
- How long you want to have to repay the money
When you refinance your existing mortgage to take out cash, you are taking out an entirely new mortgage loan, with new terms including a new interest rate, a new monthly payment amount and a new maturity date, the date when you will be done paying off your loan. With this option, you will just have one mortgage payment, which includes your “old” mortgage payment and the new amount borrowed. When considering a refinance loan, you will want to consider not only the new interest rate, but also the closing costs and terms. If you are able to significantly lower your interest rate, a refinance loan can be a fantastic way to both access your equity for current needs while paying less in interest on the loan over time.
With a HELOC, you are only paying interest on the money you borrow while that amount is outstanding, and you can repay the borrowed amount at any time. So, if you intend to repay the money quickly, or if you already have a low interest rate on your original mortgage loan, you may pay less over time by taking out a HELOC than you would by refinancing your mortgage.
To learn more about HELOCs, see our blog post 9 Things You Need to Know about Home Equity Lines of Credit (HELOCs).
Residents of Celina, Ft. Recovery, Greenville and the surrounding areas have relied on Mercer Savings Bank as their trusted community bank for more than 125 years. To talk to a loan officer about whether a refinance or a HELOC makes the most sense for your situation, call 877.672.4543, visit one of our branches today or contact us online.