If you have owned your house for an extended time, you have built up equity that you may be interested in using to take out a second mortgage or refinance to work on home improvement projects or to consolidate debt. However, between home equity loans, HELOCs and cash–out refinance loans, you may be uncertain which will work best for you. As a result, Atlanta mortgage companies have broken down the similarities and differences of each so you can make the right decision to utilize the value of your home.
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Home Equity Loans and Home Equity Lines of Credit (HELOCs)
According to Atlanta mortgage companies, both home equity loans and HELOCs are second mortgages that require you to make additional payments on top of your current mortgage. However, there are some key differences between them. With home equity loans, you are given a single sum of cash that you can repay at a fixed rate. With HELOCs, you borrow as needed during a certain withdrawal period and pay this back with interest during a defined repayment period. Unlike home equity loans, HELOCs have an adjusted rate, so the monthly payments may fluctuate over time.
Cash-Out Refinance Loans
Contrary to home equity loans and HELOCs, a cash-out refinance is made to replace your current mortgage with a new loan. This loan will be higher than your existing mortgage and the difference in these amounts is given to you in cash that you can use for debt consolidation, home improvements and more.
The Similarities and Differences Between Cash-Out Refinance Loans, Home Equity Loans and HELOCs
Per Atlanta mortgage companies, the biggest similarity amongst home equity loans, HELOCs and cash-out refinance loans is in their equity requirements. To be eligible for any of them, you cannot owe more on your existing mortgage than your property is currently worth. So, you need minimum equity of 15% to qualify for any of them. Also, your home is used as collateral for all of them, so it is imperative that you can make the new payments, or you could risk foreclosure.
The main difference between home equity loans, HELOCs and cash-out refinance loans is in their costs. Since you are replacing your mortgage with a new loan when you cash out on a refinance, the closing costs will be higher than those with home equity loans and HELOCs. However, cash-out refinance loans have lower interest rates than home equity loans or HELOCs.
Determining Which Will Work Best for You
When deciding which option to select, Atlanta mortgage companies suggest weighing whether getting a second mortgage or pursuing a refinance is better for your circumstances. To do this, you should consider a few factors including the amount you need to borrow, how you intend to use the money, mortgage rates and how long you are planning on living in your home.
If you are going to live in your property for an extended period, a refinance could afford you a lower interest rate, which means a cash-out refinance loan is likely the right selection for you. However, if you are only borrowing a small amount of money, you may want to consider a home equity loan because you will still receive a lump sum without having to pay the closing costs associated with a cash-out refinance loan. Should your plans be uncertain or you are working on a longer-term renovation, then a HELOC will allow you to borrow smaller amounts over time and as needed, which would work better for you compared to a home equity loan or cash-out refinance loan.
Make the Best Choice for Your Future with the Best Atlanta Mortgage Company
Whether you are interested in a home equity loan, HELOC or cash-out refinance loan, BrightPath will be there to help you make the best selection for your future. With first-class services and extensive knowledge of the mortgage industry, when you work with BrightPath, you are guaranteed to receive the brilliant solutions you need to help you succeed.
Contact us today to schedule a free consultation.
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