Cash Out Refi vs Home Equity Loan – Which One is Better?
Categories: Debt Management, HELOC
Cash Out Refi vs Home Equity Loan – Which One is Better?
Today we are going to discuss the difference between a cash out refi vs home equity loan. In both of the following examples there are a lot of similarities. This includes identical houses, similar lifestyles, as well as $465,000 in debt. Let’s take a closer look at how Jack and Jane can achieve monthly debt relief both quickly and easily.
| Jack | Jane | |
| Loan Type | Cash Out Refinance | Home Equity Loan |
| New Loan | $295,000 (mortgage, auto, as well as credit cards) | $90,000 (auto and credit cards) |
| Interest Rate | 7% | 9% |
| Old Monthly Payment | $2,700 | $2,700 |
| New Monthly Payment | $2,000 | $2,000 (Home equity loan payment $800 + Current mortgage $1,200) |
| Monthly Savings | $700 | $700 |
| New Debt | $720,000 ($2,000 per month x 360 payments) | $476,000 ($2,000 per month) |
To clarify, both Jack and Jane both had a monthly savings of $700. However, their lifetime debt is very different. In the end, Jack will pay $244,000 more than Jane. As a result, Jane will get to enjoy life a lot more because her mortgage payment wasn’t altered.
In conclusion:
To sum it up, both a cash out refi and a home equity loan create a monthly savings of $700. However, a cash out refi comes with more new debt that will follow you for a longer period of time. Which path would you take? Keep in mind that times will change as well as available products! However, the differences between a cash out refi vs home equity loan will remain the same. That is why it is so important to do your research along with listening to the math in order to live your best life.
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