If you have wondered about the differences between cash-out refinancing and a home equity loan, and when to choose either option, well, here are a few salient points that will help:
- A home equity loan is a discrete loan in addition to your first mortgage, while cash-out refinancing replaces your first mortgage.
- The interest on cash-out refinancing is usually less than that on a home equity loan.
- On the negative side, you would end up paying closing costs in the process of refinancing your loan, which is not the case for a home equity loan.
- A home equity loan works out cheaper if you borrow more than 80 percent of the value of your house in a cash-out refinancing option, in which case you will have to pay private mortgage insurance (PMI).
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