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Based on your personal situation and financial needs, your lender can provide the information you need to help you choose the best option for your specific financial situation. Refinancing a HELOC can include the same steps you followed to secure your original HELOC. Before you shop for a new loan, ask your current lender how to refinance a home equity line of credit. If you’re a customer in good standing, you may qualify for a better interest rate and waived application/processing fees.
If you don't end up needing the whole amount, you can be stuck paying interest on a portion of the loan you don't use. This is why HELOCs are a better option for homeowners who need to cover ongoing, unpredictable expenses. Home equity loan interest rates are usually higher for this reason. HELOCs are sometimes referred to as second mortgages as well.
Home Equity Loans Vs. HELOCs
It is very important to do your own analysis before making any investment based on your own personal circumstances and consult with your own investment, financial, tax and legal advisers. With Momentum – Horizon’s home equity line of credit loan – you don’t have to wait for “someday” to achieve all the things you want to do. You can take full advantage of the equity you’ve built in your home and move even faster toward your dreams. If you are ready to apply or would like to compare different loan options, start with the Credit Union you trust.
The second loan is subordinate to the first—should you default, the second lender stands in line behind the first to collect any proceeds due to foreclosure. The primary advantage of a cash-out refinance is that the borrower can realize some of their property's value in cash. Cash-out refinancing is ideal for borrowers requiring a substantial sum of money for a specific purpose, such as a major home improvement. Especially with a home-equity line of credit, use caution. It's like having a huge credit card to use whenever you want. The problem is, if you don't control the spending, it's your house that's on the line.
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Because a HELOC is a line of credit, you make payments only on the amount you actually borrow, not the full amount available. A HELOC also may give you certain tax advantages unavailable with other kinds of loans. Like home equity loans, you use your home as collateral for a HELOC. This can put your home at risk if you can’t make your payments or they’re late.
Before making a decision, carefully weigh the options and seek the advice of a financial expert if you need help choosing. The amount of cash you get depends on your home equity and qualifications. You’ll usually need to keep at least 20% equity in your home based on its current appraised value and meet your lender’s qualifications for DTI ratio and other factors. However, equity requirements can vary by lender and mortgage type. For example, with a VA cash-out refinance loan, you may be able to borrow up to 100% of your home’s appraised value. Also, repaying a cash-out loan requires a single monthly payment.
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Like second mortgages and HELOCs, cash-out refinances have their own credit, LTV and DTI requirements. Generally, you can expect to need a minimum 620 credit score, a DTI less than 50% and a max LTV of 80%. Let’s go back to our first example one more time, with your $250,000 home and $180,000 balance. With a cash-out refinance, you could borrow up to $200,000, use $180,000 of that to pay off your current mortgage and then keep the other $20,000 . A HELOC can be a useful choice if it allows you to consolidate your debts at a lower interest rate. You only need to pay interest on what you’re currently borrowing.
If you’re going to be using the money to improve or even increase the value of your home, it can make sense to tap into your home’s existing equity using a HELOC. This is because lenders want you to have a certain amount of equity in the home, since you’re less likely to default if you could possibly lose the equity you’ve built up. To qualify for a HELOC refinance, you need to have adequate home equity to meet the lender’s guidelines. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate.
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If your score is lower than when you originally purchased your home, refinancing might not be in your best interest because this could quite possibly increase your interest rate. Get your three credit scores from the trio of major credit bureaus before going through the process of applying for either of these loans. Talk with potential lenders about how your score might affect your interest rate if they're not all consistently over 740. On the other hand, cash-out refinances have some drawbacks.
If your lender tries to tell you that you have to pay points, however, tell him to take a hike, and go elsewhere. Some lenders may allow a loan modification which would give you a lower interest rate on your HELOC without having to refinance. A HEOC is a “secured loan,” meaning that lenders require that the borrower put up security or collateral (in this case the borrower’s home) to secure the loan.
It goes with you, it goes into your pocket, or maybe it does both. The web site you have selected is an external site not operated by Horizon Bank. Horizon Bank is not responsible for any products, services or content for this third-party site or app, except for products and services that explicitly carry the Horizon Bank name. A home equity line of credit is a second mortgage secured with your home equity.

You can only take advantage of a cash-out refinance if you’ve built up equity in your home. Plus, even if you have equity in your home, many lenders won’t let you borrow more than 80% of it. In addition, you’ll often need a credit score of 620 or better to qualify. If you already have a mortgage, a home equity line of credit will be a second payment to make.