Cash-Out Refinances vs HELOCS
/Dan Hubrich of Mountain View Mortgage is back and this month he’s discussing the difference between cash-out refinances and home equity lines of credit. He explains when and why each is the better choice.
This month I’d like to talk about the difference between a cash out refinance and a home equity line of credit. Sometimes one makes more sense VS the other one. If you have a very low rate on your current 1st mortgage then generally it makes more sense to get a no-cost home equity line of credit. “Helocs” are great but there are some negatives as well. Because they are a 2nd mortgage the rates are usually a couple points higher than normal 1st mortgage rates and many of them are variable rates. So if interest rates go up, so will the heloc rate. The 2nd thing to keep in mind is the total dollar amount you need in cash. If you owe $400,000 on your 1st mortgage and only need $50,000 cash, then the higher rate and the fact that it’s variable isn’t that big of a deal. However if you need $200,000 in cash it might make more sense to restructure your entire loan balance into a new fixed rate product which will never change. That’s a good strategy in a climbing rate environment. If rates are dropping and you can improve your 1st mortgage rate at the same time then that is almost always the best way to go. Each situation is unique so call me if you’re considering pulling money out of your current home and I’m happy to strategize with you. I will always give you the best advice for YOU not me!