Tag Archive for: cash out refi

What Is a HELOC and Why Do You Need One?

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Today we are going to answer the question, “what is a HELOC and why do you need one?” A HELOC, or Home Equity Line of Credit, is a powerful financial tool that lets you tap into the equity in your home. Whether you’re looking to consolidate debt, pay for home improvements, or manage unexpected expenses, a it can help you lower your overall cost of debt, but only if you manage it responsibly.

HELOC Defined:

A HELOC is a mortgage on your property. Unlike credit cards, which are unsecured, it requires you to pledge your house as collateral. This means the loan is secured by a lien on your home, which puts your property at risk if payments are not made.

This option can serve as either a first or second mortgage. For example, if you already have a mortgage on your home, the HELOC acts as a second mortgage. But if your home is paid off, it can serve as a first mortgage. Typically, you’ll qualify for more funds if it’s in the first position.

How Does a HELOC Work?

A HELOC functions much like a credit card. You are approved for a maximum line of credit—for example, $50,000. During the draw period (usually 10 years), you can borrow from this amount as needed. If you take out $10,000, you still have $40,000 available. Once you pay down the balance, those funds become available again.

After the draw period ends, the HELOC enters the paydown period. At this point, you can no longer borrow, and the remaining balance converts to a fixed loan with regular payments.

Example of HELOC Payments:

Payments during the draw period are interest-only. For instance, if you borrow $10,000 from a $50,000 line of credit at an 8% interest rate, your monthly payment would be approximately $67. By contrast, credit cards often require payments three times as high, just in interest! This makes HELOCs a more cost-effective way to manage debt.

5 Benefits:

  1. Lower Interest Rates: HELOCs generally have lower rates than credit cards. For example, transferring $10,000 in credit card debt to a HELOC could reduce your interest cost from $2,400 annually to just $800.
  2. Low Closing Costs: Unlike a full refinance, which can cost $6,000 to $12,000, a HELOC often has closing costs of less than $400 when working with credit unions or banks.
  3. Flexibility: Use your HELOC for anything, home improvements, debt consolidation, or even a vacation. The draw period allows you to borrow and repay funds repeatedly.
  4. Access to Cash: HELOCs let you transfer funds directly to your bank account. For example, if you need to pay a contractor in cash, you can easily move money from your HELOC.
  5. Customizable Payments: During the draw period, you can choose to make interest-only payments or pay extra to reduce your balance faster. This flexibility can help you manage your finances more effectively.

3 Drawbacks:

  1. Risk to Your Home: Since a HELOC is secured by your property, failing to make payments could lead to foreclosure.
  2. Variable Interest Rates: Most HELOCs have variable rates tied to the prime rate. If rates rise, your payments will increase.
  3. Ease of Access: While the ability to borrow easily is a benefit, it can also be a drawback if you’re tempted to overspend.

Qualifications:

Your credit score plays a big role in qualifying for a HELOC. For instance, someone with a 780 score may qualify for a higher loan amount and a better rate than someone with a 680 score. Lenders will also evaluate your income, loan-to-value ratio, and how you plan to use the funds.

For example, using the HELOC for home improvements may make lenders more favorable, as these improvements increase the property’s value.

Where to Get a HELOC:

Local and national credit unions often provide the best rates and lowest closing costs. For instance, some credit unions waive fees if you keep the HELOC open for a few years. Compare offers from multiple lenders to find the best deal, focusing on the margin, the amount added to the prime rate. A lower margin or even a negative margin can save you thousands.

Get Started Today:

A HELOC is a fantastic tool when used responsibly. By lowering your debt costs, you can free up money for other areas of your life. Whether it’s consolidating credit card debt or funding home improvements, a HELOC can help you take control of your finances. Explore your options, shop for the best rates, and make your money work harder for you!

Contact us today to find out more about HELOCs and how they can help you take control of your debt!

Watch our most recent video to find out more about: What Is a HELOC and Why Do You Need One?

 

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Is a Cash-Out Refi the best choice?

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Today we are going to answer the question, “is a cash-out refi the best choice?” Thinking about tapping into your home’s equity? A cash-out refinance could be the answer. It’s a way to access the money you’ve built up in your home by replacing your current mortgage with a new one for more than you owe. The difference comes to you as cash. Keep in mind that interest rates should be first and foremost in your mind when making this move. While a cash-out refi is great for some, it can greatly impact others in the long run.

Is it the right move? That depends on your goals.

For example, let’s say Sarah has $200,000 in equity in her home. She decides to refinance and pull out $50,000. With the extra cash, she pays off high-interest credit card debt and starts a home renovation. Her new loan payment is manageable, and she’s saving on interest every month. For Sarah, it’s a win.

Now take John. He’s also sitting on equity and thinking about a cash-out refi to buy a boat. While it might sound like fun, the added loan balance and monthly payments could leave him stretched.

The key is to look at how the extra cash will improve your finances—or not. A cash-out refi can be a great tool for paying off debt, investing, or handling emergencies. But it’s not the best fit for everyone.

Before making the leap, think about how it fits into your bigger financial picture. Want to know more? Keep reading to see if this option could work for you!

Contact Us Today! 

Is a cash out refinance the best choice? Contact us today to find out more about cash out refinances, as well as other ways to use debt to your advantage.

Free Tools For You! 

We also have free tools available! Download our Cash Out Refi vs Home Equity Loan Calculator to see which option is best for you! 

Learn more!

Visit our YouTube channel to learn more about using debt instead of letting debt use you! 

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HELOC vs. Home Equity Loan: What’s the Best Choice for You?

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Are you looking to tap into your home’s equity but unsure whether a HELOC vs. Home Equity Loan is right for you? Let’s break down these two options and see which one fits your financial needs.

Similarities Between HELOC and Home Equity Loan

Both a HELOC (Home Equity Line of Credit) and a Home Equity Loan let you borrow against your home’s value, but there’s more in common:

1. They’re Secured by Your Home

Both are loans against your home’s equity. That means if you have an existing mortgage, these usually act as “second mortgages,” adding another lien. So, keep in mind you’re pledging your home as collateral for these loans.

2. Interest Rates Are Higher than First Mortgages

While their rates are typically lower than credit cards, both HELOCs and Home Equity Loans usually have higher interest rates than primary mortgages. For example, you might see a first mortgage at 6.5%, while these might start closer to 8%. Still, for debt consolidation, they’re a smart move compared to keeping credit card debt.

3. Access to Larger Loan Amounts

Unlike many cash-out refinance options capped at 75% of your home’s value, a HELOC or Home Equity Loan may allow up to 85% or even 90% of your home’s value. This can mean more cash in your pocket if you need it.

Differences Between HELOC and Home Equity Loan

Now, let’s talk about what makes these two loans different, helping you decide which is the best fit for your goals.

1. Fixed vs. Adjustable Rates

  • HELOC: Usually has an adjustable interest rate, which can fluctuate with the market. This means your payment can change over time.
  • Home Equity Loan: Offers a fixed rate, so your payment stays the same from month to month.

Example: If you’re budgeting on a fixed income, a Home Equity Loan might offer more stability. But if you’re comfortable with variable rates, a HELOC could work.

2. Interest-Only Payments vs. Full Payments

  • HELOC: Often starts with interest-only payments, which can keep monthly costs low. However, paying only the interest doesn’t reduce the balance.
  • Home Equity Loan: Requires monthly payments on both principal and interest, meaning your balance goes down each month.

Example: With a HELOC, if you need to keep monthly payments low while you manage other expenses, the interest-only option is helpful. For those who want steady progress paying down debt, a Home Equity Loan may be better.

3. Open Line vs. Lump Sum

  • HELOC: Works like a credit card. You’re approved for a limit (e.g., $50,000), and you can borrow, pay back, and re-borrow as needed.
  • Home Equity Loan: Is a one-time loan with a set amount. You borrow it all upfront and repay it in fixed installments.

Example: Say you want flexibility to access cash over time for ongoing expenses or projects. A HELOC lets you borrow only what you need when you need it. On the other hand, if you need a single amount to cover one big expense, a Home Equity Loan may make more sense.

HELOC and Home Equity Loan vs. Cash-Out Refinance

You might wonder why not just go with a cash-out refinance instead. Here’s why HELOCs and Home Equity Loans can often be the smarter choice, especially in today’s market.

  • Lower Interest Rate Overall: Keeping your original mortgage (likely at a lower rate) and adding one of these loans can cost less overall than refinancing everything at a higher rate.
  • Flexibility in Payment Structure: Both options allow you to consolidate higher-interest debt, but they give you flexibility in repayment that a full cash-out refinance might not.

Example: Imagine you have a $100,000 mortgage at 4% and $20,000 in credit card debt. A HELOC or Home Equity Loan can help pay off that high-interest debt without touching your low-rate mortgage.

Which Option is Best for You?

Choosing between a HELOC and a Home Equity Loan comes down to your financial situation and preferences. Here are a few things to consider:

  • Stability vs. Flexibility: If you prefer knowing exactly what you’ll pay each month, a Home Equity Loan with a fixed rate may be better. For more flexibility, go with a HELOC.
  • Short-Term vs. Long-Term Needs: If you need ongoing access to cash, a HELOC’s revolving credit line may suit you. For one-time needs, a Home Equity Loan is often simpler.

Try Our HELOC Calculator

Still not sure? Use our HELOC Calculator to see your estimated payments based on different loan amounts and rates. It’s a quick, easy way to see which option works best for you.

Conclusion: Choose the Right Loan for You

HELOCs and Home Equity Loans both have advantages. Choose the one that gives you the peace of mind and flexibility you need. And remember, these loans can keep you from refinancing into higher mortgage rates while helping you tackle big expenses.

Contact us today to find out more about HELOC vs. Home Equity Loan: What’s the Best Choice for You? 

Watch our most recent video for a side by side comparison of HELOC vs. Home Equity Loan

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3 Things to Think About BEFORE You Get a Cash Out Refi

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A cash-out refinance can be a powerful tool to manage your finances. However, it’s important to make smart decisions before diving in. Let’s break it down into 3 things to think about before you get a cash out refi. This will not only protect your future, but it will also help you  get the best deal.

1. Get the Relief You Need, Not What They Offer

When you’re looking to refinance, make sure you’re getting the relief that you actually need. Sometimes, lenders might push you toward a higher amount or different options that don’t match your goals. If you’re aiming for a specific payment reduction, then focus on getting that number. Do not just focus on what the mortgage person suggests.

Example: Imagine you have a credit card balance that’s eating up $400 a month, and your goal is to free up that cash. Don’t let a lender talk you into taking on more debt than you need. Stick to your goal to reduce your payment without adding unnecessary costs to your future.

2. Don’t Pile On Debt That Hurts Your Future

It’s easy to get caught up in lowering payments today, but be careful not to add a mountain of debt to your future. Taking on too much debt can create stress and financial pressure down the road, affecting your well-being and your family’s peace of mind.

Example: If you currently have a great rate on your mortgage—like 3%—and you’re considering refinancing to a new rate of 6%, think twice. That’s doubling your cost of borrowing, which could mean a lot more interest over the life of the loan. Protect your future by not trading low-cost debt for high-cost debt.

3. Explore All Your Options

Before jumping into a cash-out refinance, look at other options. You might find that a home equity loan or a 0% credit card can meet your needs without adding so much long-term debt. These alternatives can give you the breathing room you need without putting your financial future at risk.

Example: A recent situation showed that a family considering a $290,000 cash-out refinance ended up adding over $230,000 in extra interest over time. Instead, they chose a home equity loan that kept their payments low and didn’t pile on that extra interest burden. They protected their finances and avoided unnecessary debt.

Protect Your Finances and Future

Remember, a cash-out refinance is just one of many tools available. Make sure you’re getting the best solution for your situation, not just the one that seems easy. Taking a little extra time to explore your options can help you avoid costly mistakes and keep your financial health on track.

For more guidance on cash-out refinances or to explore other financial tools, check out our Loan Cost Optimizer. We’re here to help you find the best debt solution for your goals.

Contact us today and watch our most recent video to find out more about the 3 things to think about before you get a cash out refi.

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Cash Out Refi vs Home Equity Loan – Which One is Better?

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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.

Watch our most recent clip to discover more and contact us today to find out more! We are here to help you get on the right path for your future! 

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