You’re planning some major home remodeling. Is a cash-out refinance or home equity line of credit smarter?
We’ll answer your question with a question. What’s the rate on your current first mortgage? If you locked in a rock-star rate on a 30-year fixed at 3.5% and now need to borrower $20,000 for your project, go with a home equity line of credit. If your current rate is 4.25% on the first mortgage and you need to borrow $100,000 for remodeling, then a new first mortgage is probably the way to go.
However, keep in mind that 99% of home equity lines are adjustable rate loans where the rate can change any time the Prime Rate changes (Prime is currently at 3.75%). As soon as the Federal Reserve starts “raising rates” (which is expected to happen three separate times in 2017), the Prime Rate goes up instantly and in lock step. A rising rate on a small balance isn’t going to hurt you one bit, but on a large balance, it could get painful. Few people remember the Prime Rate was 8.75% as recently as August of 2007.
An Accunet Loan Consultant can help you evaluate the risks, rewards, and payments for all your remodel financing options.
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