Which is Better: HELOC or Cash Out Refinance

Q: I am a property owner. Which do you think is better, a cash out refinance or a HELOC? Tory, Red Bank, NJ

A: A cash out refinance and a HELOC are two different ways to pull equity out of a property by borrowing against the equity that has built up in the property. The acronym, HELOC stands for home equity line of credit. One benefit of a HELOC over a cash out refinance is that a HELOC is normally a revolving line of credit that you can pay down and use over and over again like a credit card whereas a cash out refinance normally results in a one time term loan that is paid back over time. Drawbacks of HELOCs versus a cash out refinance include the fact that HELOCs often carry variable interest rates that can increase when interest rates increase and lenders can close, terminate or reduce a home equity line of credit (HELOC) in the same way a lender can reduce your available credit on a credit card. You will normally get a lower interest rate on a HELOC on your primary residence compared with a commercial HELOC on a rental property. There are scenarios where a HELOC would be more advantageous than a cash out refinance and vice versa. Your personal goals and personal financial situation will determine whether a HELOC or a cash out refinance is best for you. Thanks for your question, Tory.

For more real estate tips and information visit my blog at geraldlucas.com.