Advice on Home Equity Loan Vs. Cash Out Refinance

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Mark Cappel
Apr 8, 2008
Key Takeaways:
  • Consider the costs of a refinance vs. a home equity loan.
  • Four factors to weigh in your decision.
Is it better to consolidate debt through a home equity loan or a refinance with cash out?

Is it better to consolidate debt through a home equity loan or a refinance with cash out?

If you are consolidating credit card debt, it is important to be aware that shifting unsecured debt (credit cards are unsecured) to secured debt (your mortgage is secured by your home) can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure.

Now, consider the following four factors when deciding between the two types of loans that you mention:

Cash-Out Refinance
  • The interest rates on home equity loans are usually higher than the interest rate when you refinance, but you will generally pay substantial closing costs to refinance. Closing costs for home equity loans are usually insignificant.
  • A home equity loan takes less time to disburse, you can be done within a week. A refinance can usually take a month or longer to get finalized.
  • When refinancing, you will probably pay back the loan in 15 or 30 years. Your monthly payments will be smaller, but you will pay a lot more interest over time because your loan will last for a longer term.
  • With a home equity loan, you have more flexibility and can take advantage of a shorter term to reduce the amount of interest you will pay over the life of the loan.

In your case, if the consolidation is indeed for credit cards, then I would check with multiple lenders to see what is the lowest rate that you will get approved for and then go in for a shorter term home equity loan. But, if you are able to find a refinance deal with minimal closing costs and a substantially lower interest rate, then it would make sense to opt for a cash out refinance. Either way, makes it easy for you to compare quotes from different lenders. Just fill in your information on our refinance application page and qualified lenders will get in touch with you to discuss your options.

I hope the information provided helps you Find. Learn. Save.



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BBill, Jul, 2010
Most new businesses that fail do so because the founders do not have enough capital. In other words, businesses fail because the owners do not set aside enough cash. Preserve cash! Finance whatever you can.
rrajdeep, Jul, 2010
Dear Sir,I want to buy a shop which costs is Rs. 15 lacs. But I have Rs. 15 lacs. What can I do now. Cash payment or Finance. Which one is benefited.