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Home Equity Loan, HELOC or Cash-Out Refinance: How to Choose

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Accessing your home equity with a HELOC can be a convenient low-interest financing option. Here are factors to help you decide between a home equity loan, HELOC or cash-out refinance if you're looking to use your home equity.

a homeowner sitting at a desk, looking at paperwork and a computer screen while considering their options for accessing home equity.

HELOCs, home equity loans, and cash-out refinances are all ways to access the equity in your home. However, each option has its own advantages and disadvantages, and choosing the right one for you depends on your financial situation and goals.

HELOCs can be a smart way to leverage the equity you've built up in your home. Similar to credit cards, they come with a line of credit, and you only pay interest on the amount you borrow. The average rate on a 20-year HELOC is 8.15%, according to Meanwhile, the rate on a 10-year fixed-rate home equity loan is 5.18%.

A home equity loan is a lump sum loan that is secured by your home's equity. The interest rate is fixed, and the loan is repaid over a set term. This can be a good option for those who need a large amount of money upfront, such as for a home renovation project.

A cash-out refinance replaces your existing mortgage with a new one for a higher amount than you currently owe. The difference is paid out to you in cash, which can be used for any purpose. The interest rate on a cash-out refinance is typically lower than that of a home equity loan or HELOC, but it may come with higher closing costs.

Knowing the differences among equity loans will help you make the right choice. Here are some factors to consider:

  • Interest rates: Compare the interest rates of all three options to see which one will cost you the least in the long run.

  • Repayment terms: Choose an option with a repayment term that fits your budget and goals.

  • Closing costs: Consider the fees associated with each option, including application fees, appraisal fees, and closing costs.

  • Loan amount: Determine how much you need to borrow and choose the option that best meets your needs.

  • Tax implications: The interest paid on a home equity loan or HELOC may be tax-deductible, while the interest on a cash-out refinance is not.

If you're considering a HELOC, it's important to choose the right lender. The best home equity line of credit lenders offer competitive rates and flexible repayment. Here are some top lenders for a HELOC:

  • Wells Fargo

  • Bank of America

  • Chase

  • US Bank

  • Citi Interest in HELOCs has grown as home values and mortgage rates spiked. Here's how to decide if a HELOC could be a smart financial move for you:

  • Determine your goals: Decide what you want to use the HELOC for and how much you need to borrow.

  • Check your credit score: A good credit score will help you get a better interest rate.

  • Research lenders: Compare rates and terms from different lenders to find the best deal.

  • Apply for the loan: Once you've found a lender, submit your application and provide any necessary documentation.

If you've been considering a HELOC, this may be the opportune moment to do so. With interest rates still near historic lows, a HELOC can be a cost-effective way to finance your needs. /Research

helochome equity loancash-out refinanceinterest ratesrepayment termsclosing costsloan amounttax implicationslenderscredit score

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