Which is right for you -  HELOC or Cash-Out Refinance ? If you’re needing cash for a big remodel, renovation or even a new roof, what’s your best option to borrow against the equity in your home? There are 2 popular choices these days, a HELOC (home equity line of credit) and cash-out refinancing.

 HELOC lets you borrow from your home’s equity like a flexible line of credit. A cash-out refinance is a mortgage refinance that replaces your current mortgage with a new one; with its own interest rate and monthly payment, and gives you cash.

HELOC:  These operate much like a credit card in the sense that you can borrow and use the money as you choose, up to a certain limit and within a certain time frame. You can take out money, make payments and then borrow against the credit line again. And you’ll only pay interest on what you spend. A HELOC is a great way to use the equity you’ve built up in your home to finance home improvements such as bathroom or kitchen remodel; pay for education; cover medical expenses; and more. Easily put, it gives you flexibility, plus lower interest rates than you would find with a personal loan or a credit card. And talk to your CPA or financial planner to know if you can deduct the interest you pay on your HELOC from your taxes. Keep in mind though, you need to have accrued 15% -20% equity in your home. Also, if you think you’ll be moving in the near future, you might not want a HELOC because you’ll have to repay the balance when you sell, which could cut into your profits.

Cash-Out Refinance:  This type of loan accesses your home’s equity by replacing your existing home loan with a new one, and gives you a lump sum of cash back at closing.  Just like with your original mortgage, you’ll go through the underwriting process.  This means you’ll need to maintain a good credit score and debt-to-income ratio. You also need to have accrued enough equity in your home, about 20%.  This type of refinancing can help you get a large loan at a relatively low interest rate, and you can use the cash you get out, however you see fit.  The downside to the Cash-out is that you are restarting the clock on your housing debt, so you’ll likely increase your lifetime interest costs.

To know more about all the risks and benefits of borrowing against your home equity, be sure to talk to your financial planner.