If you’re a homeowner and need access to cash, borrowing against the equity in your property presents
plenty of loan options. But deciding on the right type of home equity loan or
home equity line of credit depends on your circumstances. You
may also want to consider leveraging your home equity with a cash-out refinance instead of adding a second monthly payment tied to your property.
Lending institutions offer three popular ways to borrow against your home equity at a lower interest rate than what’s possible with unsecured financing. Homeowners can seek a home equity loan, a home equity line of credit (HELOC) or a cash-out refinance.
How do you decide which option best suits your needs?
Choosing between the lending options based on your home equity comes down to your specific needs. For example, home equity loans can be used to pay for a range of expenses, including home improvement projects, education costs, unexpected car maintenance, medical bills and debt consolidation. HELOCs, on the other hand, are good options for borrowers looking for a financial safety net that they can use if they need it. If you’re planning to stay in your home for a while and can secure
a lower or more stable interest rate, you could be a good candidate for a cash-out refinance.
You should first meet with a financial advisor to help determine the best product based on your financial circumstances and to see if you qualify for any tax breaks or other incentives that may sway your decision. After that, it’s time to identify
a reputable financial institution to process your loan application. Here’s what you should keep in mind as you shop around for the right loan.
If you’re considering a HELOC…
- With a home equity line of credit , you can withdraw funds at any time — up to the approved limit.
- HELOCs are secured by your home’s equity, meaning you’re locking in a lower interest rate by offering your home as collateral.
- Homeowners can borrow up to 80% to 90% of their home’s equity.
- Benefits of a HELOC include flexibility and zero closing costs, compared to the substantial fees often included when closing on a conventional mortgage or refinancing.
If you’re considering a home equity loan…
- Unlike a HELOC, home equity loans get paid in a lump sum once approved by a lender.
- Like a home equity line of credit, a home equity loan is secured by your home’s equity.
- A home equity loan allows you to borrow a specific amount for a set term. The way your loan amount is calculated depends on your lender but generally equals a percentage of your home equity value.
If you’re considering a cash-out refinance…
- A cash-out refinance can be easier to obtain than a home equity line of credit or a home equity loan, as it replaces the original mortgage loan. HELOCs and home equity loans are considered second mortgages, increasing your overall debt, while refinancing often serves to lower your debt burden by securing a lower interest rate.
- Some benefits of a cash-out refinance include using the money for major expenses, consolidating debt, improving your credit score by paying off outstanding debt and increasing your home’s value with renovations and repairs.
- A borrower can take advantage of a cash-out refinance’s fixed low interest rate over the life of the mortgage loan.
If you’re a homeowner in need of access to cash, we can help you determine which option may fit your needs. Call 1.800.205.3464 or find a banking center near you where you can speak with a home equity expert.
