Are you looking to access the equity in your home? Whether it’s for home improvements, consolidating debt, or covering other expenses, two common options are a home equity loan and a cash-out refinance. While both allow you to tap into your home’s value, they have key differences. In this blog post, we’ll break down these options and help you understand which is best for your needs.
What is a Home Equity Loan?
A home equity loan is a type of loan where you borrow against the equity in your home. The equity is the difference between your home’s value and the amount you owe on your mortgage. With a home equity loan, you receive a lump sum of money that you repay over time with fixed monthly payments.
Advantages of a Home Equity Loan:
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Fixed interest rate.
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Predictable monthly payments.
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You receive a lump sum that can be used for anything, like home improvements or debt consolidation.
Best for:
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Borrowers who need a specific amount of money upfront and prefer predictable payments.
What is a Cash-Out Refinance?
A cash-out refinance involves refinancing your existing mortgage for a higher amount than you currently owe. The difference between the new mortgage and your old mortgage is paid to you in cash. Unlike a home equity loan, a cash-out refinance replaces your current mortgage, so you’ll have one loan with a new interest rate and terms.
Advantages of a Cash-Out Refinance:
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Potential for lower interest rates (depending on your current mortgage)
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Can be used for larger amounts.
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Single loan to manage.
Best for:
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Borrowers who want to refinance their mortgage and access a larger amount of money.
Home Equity Loan vs. Cash-Out Refinance: How to Choose
Both options allow you to tap into your home’s equity, but the best choice depends on your financial situation and goals:
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Go for a home equity loan if you prefer a fixed interest rate and manageable, predictable monthly payments.
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Choose a cash-out refinance if you want to refinance your mortgage, potentially secure a lower interest rate, and borrow a larger amount.
- Watch the video above for even more information.
Getting Started with a Home Equity Loan or Cash-Out Refinance
At Northwoods Credit Union, we’re here to help you make the right choice for your financial future. Whether you’re interested in a home equity loan, a cash-out refinance, or have questions about the home refinance process, our team is ready to provide personalized guidance.
Visit us at one of our Northern Minnesota branches—Avenue B in Cloquet, Moose Lake, or Floodwood—or start the process online. Our experienced mortgage team is available to answer your questions and walk you through each step of the process.
If you’re ready to explore your options or want to learn more about mortgage tips and loan options, reach out to us today.
*Not all applicants will qualify. Membership eligibility required. Equal Housing Opportunity. Federally insured by NCUA.