Many home-owners confuse Cash-Out Refinance and Home Equity Loan as being the same types of loans. However, that is not the case as they are both different. They both enable you to access the value that has accumulated in your house.
HELOCs are best suited for home-owners who have a significant amount of equity build-up in their homes. To determine the total amount of equity in your home, you can subtract the total current debt in your house from the current market value of your home. The difference is the total equity or the portion of the house you own.
In most cases, you can extract up to 90% of the cash value of the equity by providing your home as collateral for the additional funds you borrow. In doing this, you add a second mortgage to your home. The first mortgage you got remains unchanged. You get another mortgage, and now you will have two mortgage payments to make.
A Cash-Out loan enables you to refinance your existing mortgage into a bigger one and allows you to make the difference in cash. Considering you have enough equity in your house, you can use a cash-out refinance loan in a variety of ways. Moreover, it allows you to pay off your existing mortgage. You can also negotiate a new payment structure for your bigger loan and receive the excess cash in a lump sum.
When you decide to get a cash-out to refinance loan, your existing mortgage terms are replaced by a whole new agreement. This means a new rate, repayment plan, and a new term. Mostly, the terms offered are up to 30 years for repayment, and you have the option of choosing either a fixed or adjustable mortgage rate.
What’s The Difference?
The main difference between a home equity loan and a cash-out refinance is that a cash-out loan converts one mortgage into another larger one. The home equity option creates a separate mortgage on your home. Furthermore, you also need to consider the costs associated with all these loans. Many lenders charge high costs and origination fees for these loans.
So how do you decide?
If you are still confused about what option to choose from, you can call any of our helpful staff members at Texas Trust Home Loans, and they will be more than happy to help you with your questions. Apply now at www.texastrustloans.com.