How it works
This calculator helps you compare the financial implications of a Home Equity Line of Credit (HELOC) versus a cash-out refinance. To determine the best option, it evaluates the monthly payments and total costs over a five-year period based on your inputs. For instance, if you have a current mortgage balance of $250,000 at a rate of 6.5% and need an additional $50,000, a cash-out refinance at a new rate of 7% would increase your mortgage balance to $300,000. Your monthly payment would be recalculated based on this new total. In contrast, a HELOC, with a rate of 8.5%, allows you to borrow the $50,000 separately, meaning your original mortgage remains intact while you pay only the interest on the HELOC initially. This tool provides clear insights into the monthly payments for both options and their total costs over five years, assisting you in making an informed decision based on your financial situation.
Tips
- Consider your long-term financial goals when choosing between a HELOC and a cash-out refinance.
- Evaluate the interest rates carefully; even a slight difference can significantly affect your total cost.
- Factor in closing costs when calculating the total expense of a cash-out refinance.
- Review your budget to ensure you can comfortably handle the payments from either option.
Frequently asked questions
- What is the typical interest rate for a HELOC?
- As of now, HELOC rates can vary but are generally around 8.5%.
- How much can I borrow with a cash-out refinance?
- You can typically borrow up to 80% of your home's appraised value minus your existing mortgage balance.
- What are the closing costs for a cash-out refinance?
- Closing costs usually range from 2% to 5% of the loan amount; in this example, they are set at $5,000.
- How does a HELOC payment differ from a cash-out refinance payment?
- HELOC payments often start lower since you may only pay interest initially, while cash-out refinance payments are based on the full loan amount.