Which is Best: a Cash-out Refi or Home Equity Loan?

By Gabriel Traverso
Local Lender Columnist
Jul 25, 2007
Tapping into the equity you have in your Texas home means taking out a second mortgage or refinancing the one you have. The right loan for you will depend on your needs.

Texas Home Loans: Mortgage Refi or Home Equity Loan

When considering the options for taking cash out of your Texas home you must first understand your existing mortgage. What interest rate do you currently pay? Do you have a fixed-rate or an adjustable rate mortgage? The answers to these questions dictate in part which mortgage option is right for you.

Cash-Out Refinancing

A mortgage refi is probably the right move to make if you can get a better rate or term now than you have on your existing mortgage. If you have an ARM with increasing payments you'll find it usually makes more sense to find a fixed-rate mortgage. With homes in Texas holding steady in value now is a great time to be looking at a mortgage refi. Getting cash out at the same time is an easy move if you have the equity--just talk with your lender for details.

Home Equity Loans

Getting a home equity loan means taking out a second mortgage--your existing mortgage isn't touched. This is generally the best idea when your current first mortgage has a low interest rate. Consider it also if cashing in your equity would push your loan-to-value up over 80%, adding mortgage insurance to your payment.

Making this decision involves comparing the rate and terms you have on your mortgage now with what's currently available in the market. Additionally, consider your long-term goals. In a few years will you be selling or staying in your home? Lastly, find a few Texas mortgage lenders so you can compare offers and get the best possible deal.

Sources
CNN Money
The Wall Street Journal


About the Author
Gabriel Traverso is a freelance writer, professional musician, and an artist. He resides with his family in Reno, NV.