Using your home's equity to get tax-deductible borrowing power for big-ticket expenses such as college tuition or home improvements is an option many homeowners choose. Both cash-out refinance and home equity loans are usually tax deductible, but the similarity ends there. Comparing the features of each loan will help you make the best decision.
Cash-Out Refinance
One loan and one loan payment
Your existing mortgage is refinanced for a higher overall amount using some of the accumulated equity in your home
Get cash and spread the payments out over a longer term
Lower interest rate than home equity financing
Home Equity
You can choose between a lump sum loan or a revolving line of credit.
You can borrow all or just part of your home's equity - the difference between your mortgage balance and your home's estimated market value.
A home equity loan can offer the flexibility of a shorter term to help to build equity faster because you can pay the loan off sooner OR reduced monthly payments by spreading the cost over a longer term.
You can borrow more money - sometimes up to 100% of the value of your home.
With a line of credit, interest is paid only on the money you actually use, and you can access it whenever you want without having to reapply.
