One of the products that some homeowners find confusing is the Cash Out Refinancing Loan. Many people use Cash Out and Home Equity Loan interchangeably; however they are different loan products with some similarities. Here is some information on both of these types of loans.
Cash Out Refinancing
A cash out refinancing loan is part of the umbrella of refinancing loan products. A refinancing loan is a new loan to pay off an older loan, using the same property as collateral. With a cash out refinancing loan, you can "cash out" the equity of your home that has appreciated over the years. For instance, if your home is appraised at $200K and you only owe $100K on the original mortgage, you have $100K of equity built up. A cash out refinancing loan allows you to refinance the loan and also let you access some of the equity built up. In the above case, you can refinance your home for a total of $150K, cashing out $50K of equity.
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Home Equity Loan
A home equity loan is different from a refinancing loan; it is a second mortgage that is secured using your home as collateral. The original mortgage is still in place. With a home equity loan, you do not refinance your home, but just cash out the equity. If you are happy with the interest rates or current terms of your mortgage and would just like to have access to your equity, a home equity loan is the right choice.
Pros & Cons
For homeowners that need quick access to their equity, a home equity loan is the much quicker way to access it. While a cash out a refinancing loan can take several weeks or more than a month to close, some home equity loans can close in as little as one week.
Another advantage of the home equity loan is that there are usually lower fees involved. You are usually not required to pay points, but only normal closing and administration fees.
If you are interested in repaying your loan over the long haul to reduce your monthly payment cash out refinancing loans is your best option. Most loans in this category have 15 year or 30 year terms and a low rate.
If you are looking for the lowest rate for a loan, the cash out refinancing loan is typically more competitive than a home equity loan. However, most refinancing loans include points that can make these rates less attractive.
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