If you have equity in your home and need cash, you have three main options: a cash-out refinance, a home equity loan or a home equity line of credit (HELOC). The last two are often confused, but they work differently, and the right choice depends on how you'll use the money.
Both leave your first mortgage in place.
Home equity loan. A lump sum borrowed against your equity, repaid in fixed monthly installments at a fixed interest rate. It's predictable, structured and well suited to single, defined expenses.
HELOC. A revolving line of credit, like a credit card secured by your home. You draw funds as needed during a draw period (often 10 years) and pay interest only on what you use. Rates are typically variable.
The choice comes down to one question: do you need certainty, or do you need flexibility?
Both options leave your first mortgage in place, which makes them attractive when your existing rate is much lower than current market rates.
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A loan officer can compare a home equity loan and a HELOC against how and when you plan to spend the money. Pre-qualifying will not affect your credit score.
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