If you've owned your home for a few years, you've likely built equity. There are three main ways to borrow against it, and the right one depends mostly on the mortgage you already have and how you plan to use the money.
The short version
- HELOC: a revolving line of credit, usually with a variable rate. Borrow as you go. Your first mortgage stays the same.
- Home equity loan (HELOAN): a lump sum with a fixed payment. Your first mortgage stays the same.
- Cash-out refinance: a new, larger first mortgage that replaces the old one, with the difference paid to you.
Start with your current mortgage
If your existing first mortgage has favorable terms, replacing it with a cash-out refinance could raise the cost of your entire balance, not just the new cash. In that case, a HELOC or home equity loan usually makes more sense because it leaves your first mortgage alone.
If you'd benefit from refinancing anyway, a cash-out refinance can combine everything into one loan and one payment.
Then think about how you'll use the money
Ongoing or uncertain costs, like a remodel paid in stages or an emergency fund, fit a HELOC well, since you only pay interest on what you draw.
A one-time, known amount, like consolidating debt or a single large purchase, fits a home equity loan, with a predictable fixed payment.
Watch the total cost, not just the rate
Compare closing costs, how long you'll keep the loan, and whether the rate is fixed or variable. A loan with a slightly higher rate and lower costs can be the better deal if you'll pay it off quickly.
Want a side-by-side comparison for your home? Send Jake a quick note and he'll run the numbers for each option.
This article is general information, not financial, legal or tax advice. Your options depend on your full application and current program guidelines.