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Mortgage & Home

HELOC vs Cash-Out Refinancing: Which One Should I Choose?


If you’ve been paying on your mortgage for a few years, you may be considering how to get the most out of your home’s equity. Whether you’re thinking about a renovation, making a big purchase, paying off high interest rate credit cards, or consolidating other debts to improve your monthly budget, you have options that we can tailor to your specific financial goals.

Both a home equity line of credit (HELOC) and a cash-out refinance can be used to access your home's equity. But which one is right for you? Let's compare these two options:

What is a HELOC?

A HELOC is a line of credit providing flexibility to access funds when needed up to the established credit limit. It enables you to advance money whenever you need extra funds. However, you pay back the amount you owe on a HELOC in monthly installments based on the total amount advanced on the credit line. As payments are made, access to that portion of the funds is available again to advance.

Key HELOC benefits:

  • Long draw period
    The draw period on SECU HELOCs is 15 years, which means that if you’re approved for a HELOC through SECU, you have 15 years to use that credit line to fund important projects or purchases as they come up. 
  • Minimum payments
    You can choose to make the minimum required payments or pay more if you wish to pay down the credit line faster.
  • No fees for application or credit report
    With our HELOC, you don’t pay anything to apply or undergo a credit check.

What is a cash-out refinance?

A cash-out refinance allows you to use the equity in your home to access cash by replacing your current mortgage with a new, larger loan. Essentially, a cash-out refinance replaces your current mortgage, but leaves you with additional money. Most borrowers use the money they get from a cash-out refinance towards a specific goal or paying off other large debts.

With a cash-out refinance, you access a portion of the equity of your home – up to 90% loan-to-value (LTV)1 for a primary or second home and up to 75% LTV for a one-unit investment property. Let’s say your home is worth $500,000. An 80% LTV ratio would mean that you can borrow up to $400,000. 

Key refinance benefits

  • Perfect for a big purchase or paying off debt
    The one-time payout of a cash-out refinance can be used for almost any financial goal you have in mind, whether you need to pay off high-interest credit card debt or another loan, or you’re looking for money to fund a home renovation.
  • Potential to improve your credit score
    Using a cash-out refinance to pay down or pay off a substantial debt can help improve your credit rating. Lenders look at your total debt versus your available credit. This is generally expressed as a percentage, which they may use to help determine how well you're managing your current debt. 
  • It could lower your interest rate
    If you’re refinancing at a time when mortgage rates have declined since you originally financed your home, a cash-out refinance could lower the interest rate on your mortgage payment.

Choosing the right option

A cash-out refinance or HELOC may be just what you need to meet your financial goals, easily pay off other debts, or finance big purchases.

If you’re still deciding which loan type will suit you best, give us a call at (877) 589-1547 or visit your local branch to speak with a lending specialist to go over your options.