Cash-out refinances and home equity lines of credit are two borrowing options that allow homeowners to tap into the equity they have built in their home.
A HELOC is a line of credit secured by the borrower’s home that can be accessed on an as-needed basis, up to the borrowing limit. The borrower is only charged interest and is responsible for repaying the amount they actually borrowed.
For a cash-out refinance, the borrower takes out an entirely new mortgage while borrowing a portion of their existing home equity. The total borrowed amount of the cash-out refinance will be greater than the borrower’s original mortgage, and the borrower will receive the difference in a lump-sum payment from the lender.
Continue reading to learn more about the pros and cons of a HELOC versus a cash-out refinance.