Home Equity Loans and Cash-Out Refinances

Sometimes, a homeowner faces a large financial burden, such as paying for college, a home renovation, or a large credit card debt. Home equity (the current value of the home that is above what is still owed on it) is a possible source of money that can help with those burdens. There are two ways of accessing that equity, each with pros and cons.

HOME EQUITY LOANS

• A home equity loan can have either a fixed rate or a variable rate home equity line of credit (HELOC).
• A home equity fixed rate loan is a one-time lump sum second mortgage with a consistent payment, but may have a higher interest rate than the variable rate home equity line of credit.
• A variable rate home equity line of credit may have a lower interest rate, and you only draw out as much money as you need, but the interest rates are unpredictable and, therefore, the payments may go up.  With current interest rates near historic lows, it is likely that this will happen.
• Both of these types of loans mean that you are taking on more debt and losing equity in your home until the second loan is repaid.

CASH-OUT REFINANCE

• This is a refinance of your current home loan allowing you to take out the cash you need, up to a certain amount.  In Texas, it is required that your loan amount cannot exceed an 80% loan to value after the cash out.
• As with Home Equity Loans, you will be taking on more debt and losing equity in your home.

Both of these loans are secured debt, which means your house is collateral for the loan. We can discuss whether this is the best solution for your current financial needs or if there may be a better solution for your individual situation.

Generally, in order to qualify, you must retain at least 20% equity in your home, meet a minimum credit score requirement, and have verifiable income for the past two years.