Cash-out refi/HELOC - what's the difference?

Question

I have owned my primary residence for three years. Cash-out refi vs. HELOC. Advantages/disadvantages between the two? Anyone care to share their experiences and limitless possibilities when using either of the above?

Barbara Willson · Answer

Hi Justin, I have used my HELOC several times and have found that its been the only way to go.  I buy older condos, rehab/update them, lease them until I make my rehab expenses back, then sell after a few years.  Since I have owned my home over 25 years the bank gives me a line of credit for whenever amount I need it.  I use my line of credit (HELOC) to purchase more properties, then pay them down or pay them off when I sell them.  I can chose to just pay the interest each month or make a full payment or pay the whole thing off.  The line of credit remains open even if I have a zero balance or until I chose to close it.  My bank will only give a HELOC on a primary resident not on my rentals.  This method has been good for me and my investments.   Your banker can help you find the right financial fit for your needs.....don't be shy....ask lots of questions and be honest with your banker.  After all they are there to make money too!   Barbara Willson, realtor from Overland Park, Kanas.

Jay Hurst · Answer

A cash out is (typically) a fixed rate mortgage with typical closing costs for your area and has to be in first lien position. So, if you have a current mortgage you will the net the difference between the new loan and your payoff (if you have one) minus closing costs.  Because you receive the funds right away you start paying interest on the funds at that point.  You also cannot go back to pull more cash out as you pay down.

HELOC's can be first or second liens (in a lot of situations anyway) and they are adjustable rates maybe after a short fixed period with interest only payments required for a period of time.  You do not have to pay interest until you draw from the credit line. You can draw the line up or down meaning you call pull out cash pay it back then later pull it back out again.

IMO if you have long term cash needs like renovating your home or a property that you plan on holding for a long term the fixed rate cash out makes sense. But, if you need credit to use for short term like using the funds to buy a property with cash, then place perm financing on the property paying back the HELOC to be able to use again the HELOC makes sense as the use is short term so the adjustable rate is not as big of a factor.

Account Closed · Answer

HEL Home equity Loan - Higher interest

More likely to close - if factors are met

HELOC - credit card x10

fluctuating interest? can pay both interest and principal or stricitly interest

Not a professional but spoke with few lenders and this is what Ive gathered from them.

Cash-out refi/HELOC - what's the difference?

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