Untapped Equity? Cash Out Refinancing vs. Home Equity Loans

By Allison E. Beatty
Local Lender Columnist
Feb 26, 2007
If your Minneapolis home has seen excellent appreciation, you may want to tap into your home equity for important expenses. What are your options? Here's the scoop on cash-out refinancing and home equity loans.

What Is Cash-Out Refinancing?

Cash-out refinancing involves taking out a new mortgage to replace the original one on your Minneapolis home. If your current mortgage balance is $150,000 and your home is valued at $235,000, for example, you can borrow part of the $85,000 difference on a "cash-out" basis. This money will come in handy if you want to remodel or fund a child's education.

How Do Home Equity Loans Work?

Unlike a cash-out refinancing, a home equity loan is actually a separate loan tacked on to your original mortgage. Home equity loans are ideal for those whose Minneapolis home mortgages have lower interest rates than the current rate. Tap into the home equity you need without losing your favorable rate.

Compare Mortgage Rates

Depending on current rates in the Minneapolis area, you may actually land a more favorable rate with a cash-out refinancing. If your existing mortgage was taken out many years ago when rates were lower, however, consider taking out a home equity loan instead.

The Role of Mortgage Fees

As with your original mortgage, a cash-out refinancing requires that you pay closing. How much you pay will vary with your loan amount and mortgage program, but can total a few thousand dollars. Fees are either waved or are much lower with a home equity loan, so be sure to keep this in mind when weighing your options.

So, cash out refinancing or home equity loan? Sometimes it is difficult to choose. Learn the differences between them and monitor rates and fees, and you'll choose the mortgage option that best fits your needs.

Source
Bankrate.com

About the Author
Allison E. Beatty is a syndicated real estate writer who has been writing columns for 15 years.