Unlock Your Equity with Refinance Loans: Exploring Your Options
If you’re looking to access the equity you have built in your home, surging home values are opening up more and more refinance loan options. Perhaps you’re looking to access cash to pay for remodeling projects, consolidate debt, or even for a long-term vacation. No matter your goals, there’s likely some type of refinance loan that can give you the money you need.
Not all home equity loans are created equal, though. Before you dive into the refinance loan process, familiarize yourself with the different types of loans and what they have to offer:
Rate and Term Refinance
A rate and term refinance is a common refinance loan option for homeowners who want to reduce their mortgage payment. With this type of loan, you are replacing your existing loan’s terms and rate with a new rate and term. The goal of this loan is a low interest rate and a favorable loan length.
The primary benefit of this type of loan is a lower monthly payment. Though, since you are taking on a new loan, you may have to pay closing costs.
Cash-Out Refinance Loan
This type of loan is great for homeowners who have built up equity in their home and need to borrow money. With a cash-out refinance, you can borrow up to 80% of the current value of your home, minus the loan balance.
The money you borrow from a cash-out refinance loan can be used for anything, and there is no restriction on how you spend it. That being said, this loan typically requires closing costs and often carries a higher interest rate than a rate-and-term refinance.
Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit (HELOC) is a great option for homeowners who need access to funds for long-term projects. With a HELOC, you can borrow up to 85% of the current value of your home, minus your mortgage balance. The interest rate on a HELOC is also usually lower than that of a cash-out refinance.
The advantages of a HELOC are that it allows you to draw on funds as you need them, and you can often pay off the loan quickly with no penalty fees. Additionally, a HELOC has lower fees and closing costs than a cash-out refinance. The downside of a HELOC is that it has a variable rate, so your payment can change if the interest rate goes up.
Choosing the Right Loan for You
Before you choose the right refinance loan for you, assess your financial situation and consider the pros and cons of each option. If you’re looking to access cash and are comfortable with a variable rate loan and closing costs, a cash-out refinance may be the best option for you. However, if you want money for a long-term project and don’t want to worry about closing costs, a HELOC might be the right choice.
No matter the type of refinance loan you choose, understanding the process and exploring all your options can help you get the funds you need and help you unlock the equity you have built in your home.
