Cash Out Refinance VS Home Equity Loans

Homeowners in need of extra cash have more options available to them than in the past. Even though mortgage lenders have tightened standards for borrower, there are still choices to make. Second mortgages, home equity loans, home equity lines of credit, and cash out refinancings have made getting cash out of your property (called "mortgage equity withdrawl") much easier. But with the mortgage market and real estate values in turmoil, which is the best way to go?

Benefits of Cash Out Refinancing

If you have equity in your home, you can choose to refinance into another mortgage and get the extra cash back at closing. This may increase the payment due on your first mortgage, but you may get a lower interest rate than you have now. Also, you may choose to extend the term of your mortgage (most financial advisors believe this is a bad idea, as it extends the amount of time you will be paying for your house). This option is also more difficult to choose if you already have a second lien on your home. But it does make it easier at tax time to take a deduction on the interest you pay.

Benefits of the Home Equity Loan

Getting a home equity loan may be your best bet. It leaves your existing mortgage in place so you don't need to go through the lenghty process of getting a new mortgage. The home equity loan can be either a line of credit that you can draw on when you need the money (up to the approved amount) or a fixed amount you receive at closing. The interest payments on these loans may also be tax-deductible, but you should consult your accountant to make sure. A very good source for these loans are your local credit unions, but larger banks and mortgage companies can sometimes offer a broader selection of choices. One of the biggest drawbacks with a home equity loan is that, since it is a second lien, you will be paying a higher rate of interest than you would be for a first mortgage.In both cases, you still have to have equity in your home if you need cash now. Lenders will only lend you up to 80% of the value of your home.

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Cash Out Refinance VS Home Equity Loans

Benefits of Cash Out Refinancing

Benefits of the Home Equity Loan

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