Home Equity Line or Cash Out Refinance

Home Equity line of credit can be a beneficial way of taking out cash from the equity in your home in order to pay off high interest rate credit card bills or to do home improvements or for a child’s education. It can also just be there, as an available credit line in case of an emergency situation, like your car just broke down and you need another, or your roof started leaking and has to be replaced.

One benefit of a equity line of credit is that because it is a second mortgage on your home the interest paid on this loan is tax deductible.

Equity lines are most often interest only, adjustable loans that are determined by the interest rate of the Federal Reserve. When the fed raises rates your equity line will also be adjusted to a higher interest rate.

Equity Line Vs. Cash Out Refinance
When determining a strategy that best suits your personal financial goals, you might run across a dilemma where you have to decide on whether to take out a home equity line of credit or refinance your entire mortgage and take extra cash out.

The most obvious time to refinance and take cash out is when you are looking for a set amount of cash and not a line of credit.

A cash out refinance is most beneficial when you can also reduce your interest rate on your 1st mortgage. Oftentimes, you can take out extra cash while still keeping your monthly payment close to the same payment of your current loan.

Furthermore, a cash out refinance locks in the rate of the 1st mortgage if it is a fixed rate loan, while an equity line will always be vulnerable to adjustment. If and when the Federal Reserve begins to raise rates your equity line will adjust higher.

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