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When to choose home equity financing
A home equity line of credit (HELOC) is a revolving line of credit that you can access now and into the future if necessary. With a HELOC, you'll have access to a revolving line of credit that can help you manage large expenses as they arise—and you'll only pay interest on what you borrow. Compared with a mortgage refinance, where you receive a large lump sum of cash, a home equity line of credit may have a lower cost of borrowing.
On the other hand, a home equity loan may be best if you need a large lump sum of cash and have a lower mortgage rate than what you'd get with a new mortgage. Home equity financing can offer lower interest rates (because it's secured by the equity/ownership you have in your home) with minimal closing costs and fees. If your mortgage refinance comes with a big increase in your interest rate, and depending on how high the interest rate is and how much cash you take out and your closing costs and fees, a home equity line of credit may offer a lower cost of borrowing.
When to choose a mortgage cash-out refinance
Choose a mortgage refinance with cash-out to secure the lowest variable and fixed rates available if you need a large lump sum of cash. Furthermore, the expansive suite of mortgage loan options allows you to shop for the solution that meets your needs—now and in the future. You'll pay higher closing costs and fees with a mortgage cash-out refinance, but it's possible that these are offset by the competitive interest rates available in today's market. Just make sure you have a need for all or most of the cash you're getting and compare the total of your new mortgage with alternatives.