Choosing Between Refinancing and a Home Equity Loan

How do you go about choosing between refinancing and a home equity loan? The good thing is that both of these loans are often tax deductible. However, there are differences between the two, and you need to know what sets home equity financing and cash-out refinancing apart. The best decision can be made by comparing both of your borrowing options.

Finance Options

The cash-out refinancing option is composed of one loan and one loan payment, which is the way these types of loans are set up. With a home equity financing loan, you have two choices. You can either decide upon a revolving line of credit or one lump sum. With a revolving line of credit, a maximum loan balance is set, and once the balance has been paid off, you can borrow again.

Loan Terms 

Another difference to consider when you are choosing between refinancing and a home equity loan concerns the terms of the loans. Cash-out refinancing allows you to achieve cash and spread your payments over a longer term. With a home equity loan, you have flexibility and can go for a shorter term, which can help build equity quicker and pay the loan off that much sooner.
 
Alternately, a home equity loan can offer you lower monthly payments by spreading out your payments over a longer loan term. Home equity loans also give you the chance to borrow more, which might go up to the entire value of the home.

Rate Differences 

Home equity loans with a credit line have you pay interest only on the money used, which can be accessed from anywhere without the need to apply again. However, cash-out refinancing loans give you a higher interest rate. It all comes down to what is best for you!