We can set all the right plans for our future but no one could predict things like a global pandemic, an economic recession or a natural disaster. When those things hit, it’s important to know what options you have to get your hands on some cash if you need it.

If you need a cash-out refinance or a home equity line of credit, there are some important things to know about the process and how that will impact you long term. 

What is a Cash-Out Refinance?

When you have a cash-out refinance, you are borrowing against your home equity to obtain funds. With this type of refinancing, you receive your check at closing and the amount of this loan is then added onto the mortgage that you owe. Since mortgage rates tend to be lower than other types of debt and are tax-deductible, this route can be a very cost-efficient way to borrow.

Doing this results in a new mortgage loan which may have different terms than your original loan. These terms could range from a different type of loan, a different interest rate or a longer or shorter time period for paying off your loan.

Before your check is cut, proceeds are first used to pay off your existing mortgage and any closing costs or prepaid items. You can expect similar closing costs to your original mortgage at your cash-out refinance closing.

What is a Home Equity Line of Credit?

Home equity line of credit (HELOC) is taken out in addition to your existing mortgage. Since this is considered a 2nd mortgage, it will have its own term and repayment schedule separate from your 1st mortgage. However, if your house is already paid for and fully owned by you (no mortgage), some lenders allow you to open a home equity line of credit and the HELOC will be your 1st and only mortgage.

With a HELOC, you can withdraw from your available line of credit as needed during your draw period, which is usually about 10 years. During this period, you’ll make monthly payments with principal and interest. After the draw period ends, the repayment period begins with 20 years to repay the outstanding balance.

HELOC usually has no (or relatively small) closing costs.

Ready to Call Your Real Estate Attorney?

If you’re in need of taking any equity out on your home, the best next step is to call Frank B. Pallotta Law today. Our expert team will guide you through your current situation and make you feel confident in choosing the right decision between a cash-out refinance or a home equity line of credit. And with videoconferencing still in effect under COVID-19 Executive Orders, Frank B. Pallotta Law can make your refinance closing process entirely stress free. 

What You Should Know About Home EQUITY
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