Your home is one of your most important investments, and in many cases, it can be leveraged as a source of funds if you are ever in need of some quick cash. For example, this can be a great way to get funds for a round of home improvement upgrades – reinvesting the capital right back into your property. Or, the home’s equity could be used to consolidate your credit cards or other debt onto a lower-interest loan.
There are a few different ways this could happen, with the most common options being either cash out refinancing or getting a home equity loan. This is a big decision, so it’s important to weigh the options and choose the one which works best for you.
Home Equity Loan or Cash Out Refinancing? What You Need to Know
- Home Equity Loans
Simply put, “home equity loan” is another way of saying “second mortgage.” Since your home is an asset worth a substantial amount of money, it can be put up as collateral against a new loan. Generally, this loan can be almost as much as the total amount of equity in your home. (That is, the fair market value of your home minus any debts attached to it.)
While this is the traditional option for leveraging home equity, it has one major drawback: rather than one monthly mortgage payment, you now have two. And if you fall behind on either, your home could be at risk.
- Cash Out Refinancing
Cash Out Refinancing is a different way to restructure your debts if the amount of equity in your home is substantially more than your remaining mortgage payments. In a cash out loan, you refinance your original mortgage for more than the mortgage’s value, then take out the difference in cash. For example: if you still owe $100,000 on your existing mortgage, but need $25,000 for home improvements, you would end up with a $125,000 mortgage at the end of the process.
So, unlike a home equity loan, you end up with only one mortgage payment – but that one payment will be larger than before, depending on the amount you cash out.
Which Option Is Right for You? The Mortgages Diversified Team at Summit Mortgage Corporation Can Help
Deciding between the two options is tricky, and usually, fees will be the determining factor. To make an informed decision, you need to speak with experienced home refinance expert at the Mortgages Diversified Team at Summit Mortgage Corporation for. Click here to learn more.