If you’re interested in borrowing against your home’s available
equity to pay for other expenses, you have choices. One option would be
to refinance and get cash out. Another option would be to take out a
home equity line of credit
layer. Here are some of the key differences between a
Glossary Term: cash-out refinance and a home equity line of credit (HELOC):
Loan terms
Cash-out refinance: pays off your existing first mortgage
layer and
allows you to take out some of your home equity in a lump-sum cash
payment at closing. This results in a new mortgage loan which may have
different
Glossary Term: terms than your original loan (meaning you may have a different type of loan, a different
Glossary Term: interest rate as well as a longer or shorter time period for paying off your loan). It will result in a new payment
Glossary Term: amortization schedule, which shows the monthly payments you'd need to make in order to pay off the mortgage
Glossary Term: principal and interest by the end of the loan term.
Home equity line of credit: is usually taken out in
addition to your existing first mortgage; rather than replacing it, it
will have its own term and repayment schedule, separate from your first
mortgage, and is considered a second mortgage. However, if your house is
completely paid for and you have no mortgage, some lenders allow you to
open a home equity line of credit in first lien position, meaning the
home equity line will be your first mortgage.