Cash-out refinancing vs. home equity loan: What to consider now
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Although mortgage interest rates surged in recent years, making homebuying difficult for many Americans, home values rose at the same time. With prices high in many parts of the country currently, the average homeowner finds themselves in possession of approximately $320,000 worth of equity right now. And they can access that in a variety of ways, ranging from home equity lines of credit (HELOCs) to reverse mortgages to cash-out refinancing and home equity loans.
AI Summary
Main Idea: With the Federal Reserve holding rates steady, the article says many homeowners may find a home equity loan better than a cash-out refinance because it lets them keep a lower mortgage rate.
Key Points:
- Homeowners have built up large amounts of equity as home values rose, giving them more ways to borrow against their homes.
- A cash-out refinance replaces the current mortgage with a new one, which can mean giving up a much lower old rate for a higher one.
- A home equity loan lets borrowers keep their existing mortgage and take a separate fixed-rate loan for cash.
- The article says home equity loan rates may move faster than mortgage rates, but both options should be reviewed carefully because missed payments can put a home at risk.
Impact on the People
Negative Impact
Cash-out refinancing can force households to replace a low mortgage rate with a much higher one, raising monthly costs and the risk of falling behind.
Positive Impact
A home equity loan can let homeowners borrow cash while keeping their current mortgage rate, which may help families handle expenses more cheaply.
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