The difference between HELOC (Home Equity Line of Credit) vs Cash Out Refinance
We are projected for a slow economy or recession in 2023. In my humble opinion cash is king. One way to make cash available for the rainy days is to tap into the HELOC of your house.
For people who live in the house for around 3-4 years you should have some equity available. I do have clients that live in a house for 7 years and paid off so much on the mortgage balance yet still don’t know they can tap into the HELOC to get up to 85%. Let’s look at this simple example:
Purchase price: $250K
Current market value: $370
Mortgage balance: $20K
Your home equity: $370-$20-$250K = $100K
You can apply for a line up to: $100k x 0.85 = $85K.
You can use that money for home renovations, a down payment for an investment property, to buy a business etc. It takes around 3 weeks for the process without any closing costs to you, however it can only approved for your primary home (not investment properties). Upon closing, you should treat this as another credit card. Use it when you need it and pay back with interest. Nothing to pay if not used. The biggest disadvantage is a HELOC rate is not fixed, it changes with the prime rate. However you pay for interest only, not principal. If you prefer a fixed rate with long term loan you might want to consider a Cash Out Refinance. This requires closing costs and fixed monthly payments even though you pay down a big chunk of mortgage balance during the loan term.
I have at least 3 past clients reached out this past month asking about the difference between these 2 and thought this article will help the rest of us. Yet feel free to call anytime you have a question for me. I can refer you to a professional to speak further on these matters and others when it comes to mortgages.
Contact these lenders for further questions:
HELOC: Huntington, Melissa.Curran@huntington.com, Phone 614.987.2442
Cash Out Refinance:
James McBain: james@golibertyloans.com, Cell: 614-460-1846
Anh Pham, anh.pham@absoluteml.com, Cell: (714) 548-1346
