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Home equity loan? These 3 things can help you choose the right type of loan.

If you’re planning a home renovation, potential tax deductions can make a home equity loan or HELOC more attractive.

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If you are a home owner, then Equity you build over time Borrowing from competitive rates can be a valuable asset — especially compared to other borrowing options today.

But there are a few different ways to borrow against your home equity, each with their own benefits and costs. A Cash-out refinancing, for example, replaces your existing one, giving you the option of taking out a new mortgage at a higher amount But a Home equity loan or Home Equity Line of Credit (HELOC) A separate loan option that you take out in addition to your mortgage.

If you’re looking to borrow money from the equity in your home, it can help to know the ins and outs of these products, so you can make sure you’re making the right choice for your financial situation and goals.

Compare today’s top refinance rates to find the best option for you.

3 things that can help you choose the best home equity option

Here are three things to consider before deciding between a cash-out refinance, home equity loan or HELOC.

Your current mortgage rate

One way to decide which product to choose is whether you’re happy with your current mortgage rate.

A Cash-out refinancing These are the only borrowing options that will change your existing mortgage loan. If your mortgage rate is too high and you have the credit to qualify for a better rate today, refinancing may be the best option. Although a cash-out refinance will increase the overall amount you owe, you can save money with lower interest over the life of the loan.

On the other hand, if your mortgage interest rate is low — you may have locked in a historically low rate during the pandemic, for example — you don’t want to risk an increase in the interest you owe. Instead, consider borrowing separately from your mortgage in one form Home equity loan or HELOC. Fortunately, both are very bearable Competitive interest rates Today compared to other borrowing options like personal loans or credit cards.

Check today’s top home equity rates here now.

How do you want to access the money?

The amount of money you want to borrow — and how you want to access it — is another factor to consider.

Both home equity loans and cash-out refinancing will result in a single amount that you can put towards your financial goals — whether you’re looking to complete a Home Renovation Project or existing down payment High interest loans. It can be good if you have a specific goal in mind and know how much money you will need to complete it.

On the other hand, with HELOCs, you are approved for a line of credit from which you can borrow as needed for a specific period of time. Unlike a Second mortgage or cash-out refinancing, you’ll only pay interest on the amount you use, not the entire line of credit you’re approved for. If you want to complete multiple projects over time or use your home equity as a safety net, this may be a good choice for you.

What will you use the money for?

Along the same lines, what you are using the money for can also help you decide between borrowing options.

With a cash-out refinance, you can use the money you borrow for basically anything. However, it’s usually a good idea to use it as a way to restore more value to your home to increase your equity, or to consolidate and pay off debt that carries a high interest rate.

But home equity loans and HELOCs have added incentives if you use them for eligible home renovations or repairs. The IRS allows you to Deduct the interest you pay The money from your taxes goes toward this loan if it’s used for qualified renovation expenses.

Although home equity loans, or HELOCs, can be useful for paying off high-interest loans and other financial obligations, there is a clear incentive to return the money you borrow to the value of your home.

Bottom line

If you’re a homeowner looking to borrow money today, looking at your home equity can be a solid option — and potentially help you save as interest rates rise. Before deciding whether a cash-out refinance, a home equity loan or a HELOC is right for you, make sure you understand the pros and cons of each. The rate you’re currently paying on your mortgage, the options you’ll have for accessing your money, and what you actually want to use it for can all help you determine the right borrowing option for you.

Also note: One characteristic that cash-out refinances, home equity loans and HELOCs all share is that they are secured forms of debt secured by your home. Whichever type you choose, you should plan to budget for your monthly payments and pay off your balance in full and on time each month. Otherwise, you risk losing your home.

Start comparing the best home equity rates available today.

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