Need Cash For Home Repairs? Should You Refinance Or Take Out A Home Equity Loan?
Whether your roof is nearing the end of its useful lifespan or you're dealing with a slippery, rickety deck that could pose a liability for guests, you may be wondering how you'll be able to pay for the repairs your home so desperately needs. Fortunately, interest rates are still near their all-time low, giving you more financing options than you may have previously thought possible. However, sorting through the variety of products, interest rates, and monthly payments available can often be overwhelming. How can you decide whether a cash-out refinance or home equity loan or line of credit is the best choice for your situation? Read on to learn more about your financing options for your impending home repair.
Are you eligible for a home equity loan or cash-out refinance?
If you've only recently purchased your home or if your home lost a significant amount of its purchase value during the Great Recession, you may be concerned about your ability to qualify for either a cash-out refinance or a home equity loan or line of credit. Generally, these loans are available only to consumers who already have a certain threshold of equity built up -- often around 20 percent. However, certain loan products require much less equity, and you may be able to obtain a refinance or home equity loan with as little as 5 percent equity.
How can you decide whether a cash-out refinance or a home equity loan is the right decision for your situation?
Before deciding whether to pursue one specific option, you'll want to take some factors into account to determine whether more significant cost savings are available by taking one option over the other.
The first factor you'll want to consider is the amount of time you plan to remain in the house. While some home repairs can pay for themselves upon resale, others don't add nearly as much value -- so choosing a home equity loan or line of credit for which you may still be personally responsible for repaying after you sell your home could wind up costing you more than a refinance in the long run. On the other hand, paying high closing costs to refinance to a lower interest rate just before you sell your home may not be the best use of this money.
Another important factor is the interest rate. Because many home equity lines of credit are extended with variable interest rates, you could wind up paying more interest in the future as rates rise. On the other hand, a refinance or home equity loan is usually available at a fixed rate, giving you the peace of mind that comes with a fixed monthly payment.
You have many options, so you may want to consider talking to a professional from a company like Weyco Community Credit Union for more information about your options. Figure out what will work best for you in your specific situation.
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