All Forum Posts by: Harley Cedoit

A HELOC (Home Equity Line of Credit) is a second mortgage behind the 1st primary mortgage. They work like a credit card using your house as collateral. You can take out funds as you wish based off the line of credit amount. They typically have a "draw" period of 10 years, and then it moves into a repayment period for the remaining 20 years. The first 10 years are interest/only payments from what you use. For example: you take out a credit line of $100,000 but use only $50,000 of it. You only pay interest on the $50,000, and then principal/interest after 10 years. HELOC's have a variable interest rate.

A refinance is where your current mortgage is replaced with a new mortgage. You can do a rate/term refinance where you aren't taking any money out; or, you can do a cash-out refinance where you receive cash at closing based off the amount of equity you have. A refinance will be a fixed rate or an ARM (adjustable rate mortgage).

Most lenders cap your LTV on both options at 80%.

Hope this helps.

@Harley Cedoit - it depends on your goals and how much money you want. A conventional refinance will most definitely get you a lower rate than a HELOC, based on facts/rate sheets I will strongly disagree with the other comments. But, the answer it depends...

Conventional cash out refi is best if - you need your money now and usually is better for larger loan sizes. Pros - a lower mortgage rate, a fixed mortgage rate, and I will also argue its the same or even easier than going to a big bank or credit union and getting a HELOC. I know people that have waited 60-90 days at credit unions and have had issues.

HELOC cash out is best if - you want flexibility and do not need your cash now, and for smaller loan sizes. HELOC's are variable rate loans directly tied to Prime rate. That means when the Federal Reserve raises rates by 0.5% in a month or two, your HELOC rate will go up exactly 0.5% (0.5% is an example not a prediction). So, expect your HELOC rate to go up for the rest of 2022 and 2023. But, its very flexible, if you need your money for a few months than want to pay it off, and use it again, its a line of credit so it acts kind of like a credit card. Flexibility is the big perk. Cons - higher rate than conventional loans and variable rate.

Generally speaking and very simplistic but HELOC's are great for short term financing needs and cash out's loans are great for long term needs.

THANKS Kevin thats a good strategy 

A refinance is simply that. Refinancing the property that is currently financed, either by you or a third party. You can go rate and term or cash out. With a rate and term you are keeping the equity in the property (or whatever else you’re financing) and simply getting a new, and hopefully better, rate and/or term. Cash out refi is taking out equity from the property which appreciated, however the method of appreciation. 

A HELOC is a type of home equity loan that like Jasmin  mentioned is a line of credit, secured by your property. The rates will most likely be variable so holding it long term may not be advantageous to you.

They are both useful and can work in concert with each other. Let’s say you have a primary and get a HELOC to force appreciation on a distressed property. Now that property is worth more money and you can cash out refinance to pay off the line of credit and walk away with extra funds. Reinvest that capital so on and so forth. They each have their purpose and I wouldn’t necessarily compare them. 

Quote from @Harley Cedoit:

HELOC vs cash-out Refinance

Thanks jasmin this help me alot

So with a HELOC acts like a second mortgage on your property, you can actually get better rates than a refinance most of the time. I highly suggest for you to go to a big bank or a local federal credit union (you might find a better rate at a credit union) For a home equity line of credit. When you cash out refinance you are more likely to get a higher rates and it is more tedious of a process since it is like you're getting another full mortgage on the property. The benefit with a cash out refinance if you already have more than one mortgage on the property you can just refi into one big one, and have one mortgage payment. I would say the biggest difference between the two is a cash out refinance is if you need all of the money out of your home now, with the HELOC you have the flexibility to use your equity as you need & it is like a credit card, you only pay interest on what you use. Hope this helps!!