What Is A HELOC and Is It Right For You?

by | Dec 24, 2021 | Resources

Home Equity Line or Cash Out Refinance?

The HELOC (home equity line of credit) is a very common loan to consider, especially when a homeowner has significant equity in their home. Read on for the pros and cons of a HELOC, compared to a cash-out refinance mortgage to access the equity in your home.

A special thanks to Josh Bucio from Waterstone Mortgage Corporation Waterstone Mortage for this expert information.

Josh Bucio Mortgage Team is a local lender that helps families with mortgage loans, whether it’s for a refinance or purchase of a home. You can learn more about how they can help here.

Additionally, you can reach him at his cell at 414-305-1844, or email him at [email protected].

 

What is a HELOC?

The HELOC (home equity line of credit) is a very common loan to consider, especially when a homeowner has significant equity in their home.

 

HELOC PROS

  • Provides a line of credit so you can draw funds when needed.
  • Some lenders may extend the line of credit up to 100% of the property value.
  • Costs are usually less to establish a HELOC compared to closing costs for a mortgage.

 

HELOC CONS

  • Interest rate is usually based on the primate rate which means it can adjust frequently.
  • If the HELOC offers a fixed rate option, the interest rate may be higher than a mortgage loan.
  • There may be an annual fee to keep the line of credit available, whether you use it or not.
  • Because you use your home as collateral, failure to make payments could result in the loss of your house.

 

Cash-Out Refinance Mortgage PROS

  • Provides a lump-sum cash outlay in the form of a loan.
  • You can combine the current mortgage with the cash-out loan; therefore you have only one monthly payment.
  • You are able to lock in a low fixed rate for a period of time, versus an adjustable-rate or balloon payment.
  • A full appraisal report may show a higher property value than an automated value.

 

Cash-Out Refinance CONS

  • Generally, the maximum loan amount is 80% of the property’s appraised value.
  • You receive one lump-sum amount at closing versus the ability to draw against the equity when needed.
  • Closing costs can be higher than a HELOC or personal loan.