Tag: refinance

Mortgage News Matters

Cash-Out Refinance vs. HELOC

Understanding the Differences and Exploring Their Benefits

If you’re a homeowner in need of funds, you may have come across two popular options: cash-out refinance and Home Equity Line of Credit (HELOC). Both of these financial tools allow you to access the equity in your home, but they have distinct differences. In this blog post, we will compare cash-out refinance and HELOC, explaining their unique features and benefits. By understanding these differences, you can make an informed decision about which option suits your financial needs and goals. 

Cash-Out Refinance 

A cash-out refinance is a mortgage option that allows you to refinance your existing mortgage for an amount greater than what you owe. This enables you to receive the difference in cash. Essentially, you replace your current mortgage with a new one, and the equity you have built in your home becomes accessible to you. The funds from a cash-out refinance can be used for various purposes, such as home improvements, debt consolidation, education expenses, or investments. 

HELOC (Home Equity Line of Credit) 

A HELOC, on the other hand, is a line of credit that allows you to borrow against the equity in your home. It functions similarly to a credit card, where you have a maximum borrowing limit and can withdraw funds as needed. With a HELOC, you have a draw period during which you can access funds, and you only pay interest on the amount you borrow. After the draw period, you enter the repayment period, during which you can no longer withdraw funds and must start repaying both principal and interest. 

Key Differences 

Now let’s explore the key differences between cash-out refinance and HELOC: 

  1. Loan Structure: A cash-out refinance replaces your existing mortgage with a new one, resulting in a single loan with a new interest rate and term. A HELOC, on the other hand, provides a line of credit separate from your mortgage, allowing you to access funds as needed during the draw period. 
  2. Interest Rates: The cash-out refinance often offers fixed interest rates, providing stability and predictability in your monthly payments. A HELOC typically has variable interest rates, which can fluctuate over time based on market conditions. This means your monthly payments can vary during the draw period. 
  3. Repayment Terms: A cash-out refinance comes with a new loan term, which means you’ll have a new timeline to repay the borrowed amount. The HELOC has a draw period (usually 5-10 years) during which you can borrow funds, followed by a repayment period (usually 10-20 years) where you repay the principal and interest. 
  4. Accessing Funds: With your cash-out refinance, you receive the funds as a lump sum at the time of closing. Your HELOC allows you to access funds as needed during the draw period, similar to how you use a credit card. 
  5. Tax Deductibility: The interest paid on both a cash-out refinance, and a HELOC may be tax-deductible, but it’s essential to consult with a tax professional to understand the specific rules and regulations in your jurisdiction. 

Benefits of Cash-Out Refinances and HELOC

Both cash-out refinances, and HELOCs offer unique benefits. Here are some advantages of each: 

Benefits of a Cash-Out Refinance: 

  • Access a large sum of cash: A cash-out refinance allows you to access a significant amount of money in one transaction, making it suitable for substantial expenses like home renovations or debt consolidation. 
  • Fixed interest rates: With a cash-out refinance, you can secure a fixed interest rate, providing stability and predictability in your monthly payments. 
  • Simplified repayment: You have a single loan to manage, simplifying your finances.

Benefits of a HELOC: 

  • Flexibility in borrowing: A HELOC provides flexibility in borrowing, allowing you to access funds as needed during the draw period. This is beneficial when you have ongoing expenses or unpredictable funding needs. 
  • Pay interest only on what you borrow: During the draw period, you only pay interest on the amount you borrow, potentially reducing your monthly payments. 
  • Revolving line of credit: Once you repay a portion of the borrowed amount, you can borrow it again, giving you ongoing access to funds. 

Choosing the Right Option for You 

When deciding between a cash-out refinance and a HELOC, consider the following factors: 

  1. Financial Goals: Determine your specific financial goals and how the funds will be used. If you have a one-time large expense, the cash-out refinance may be the better choice. If you have ongoing or unpredictable funding needs, a HELOC could provide greater flexibility. 
  2. Interest Rates: Assess your comfort level with interest rate fluctuations. If you prefer a fixed interest rate, cash-out refinance may be the more suitable option. If you’re comfortable with variable rates and potentially lower initial payments, the HELOC could be advantageous. 
  3. Repayment Terms: Consider how quickly you can repay the borrowed amount. If you prefer a new loan term with fixed monthly payments, a cash-out refinance may align with your financial strategy. If you want more flexibility in repayment and ongoing access to funds, a HELOC may be a better fit. 
  4. Closing Costs and Fees: Evaluate the closing costs and fees associated with each option. A cash-out refinance typically involves closing costs similar to those of a traditional mortgage. A HELOC may have lower upfront costs but could include fees like annual maintenance fees. 


Cash-out refinance loans and HELOCs are both effective ways to tap into your home’s equity. Understanding the differences between the two can help you choose the option that best aligns with your financial needs and goals. Whether you prefer a lump sum payment with a fixed interest rate (cash-out refinance) or ongoing access to funds with flexible repayment (HELOC), consult with a mortgage professional to evaluate your options and make an informed decision. 

Mortgage News Matters

What’s the Difference Between Refinancing & Home Equity Loan?

One of the major benefits of owning your own home is that it can often be a major financial investment. In the long-term, real estate tends to increase in value over time due to the appreciation of the land it sits on and by building equity.

To determine the value of your property, let’s take a closer look at appreciation, how to build equity, and different ways to obtain a mortgage loan refinance.

What is Appreciation?

Appreciation represents the change in the value of your home over time. This change is typically due to the piece of land that the home sits on, rather than the structure itself which tends to lessen in value, due to typical wear and tear.

What is Equity?

A home’s equity represents the difference between the current market price of the home and the amount that is still owed on the mortgage. Equity grows as you pay down your mortgage. It is important to note that building equity takes time, as it takes a while to lower the principal balance owed on the mortgage loan.

Both appreciation and equity grow over time. This means the longer you own your home, the more valuable it becomes.

With this, homeowners who take out a mortgage to pay for their home can choose to access cash to cover events like unplanned emergencies, necessary repairs, and important updates by choosing to refinance their current mortgage loan.

Why would you want to Refinance?

The main reason homeowners choose to refinance is to lower the overall cost of their mortgage or obtain equity that has been built over time.

Borrowers can lower the overall cost of the mortgage loan by refinancing during a period of lower interest rates. Or, they can choose to access the equity they’ve built in their home get cash out to pay for upgrades, remodels, or other life expenses.

What types of Mortgage Loan Refinances are there?

The two most common forms of mortgage loan refinancing are rate-and-term refinancing, which is when a borrower exchanges their current loan for a new one, or by accessing equity in their home, which can be done by obtaining a cash-out refinance or home equity loan. Though these are the most popular forms of refinancing, there are many methods out there and it is important to understand each to assure that you are selecting the right one for your unique situation.

What is a rate-and-term refinance?

A rate-and-term refinance is when a borrower replaces their current mortgage with a new one, typically with a better interest rate. No money is exchanged in this type of refinancing, other than any costs associated with closing or funds from the new loan to pay off the existing one.

What is the difference between a cash-out refinance and a home equity loan?

A cash-out refinance pays the homeowner a portion of their home’s equity in cash. This method results in a new mortgage loan for the homeowner at a larger amount than was owed on the previous loan, giving owners cash in hand. Compared to a rate-and-term refinance, a cash-out refinance will typically result in borrowers paying a higher interest rate or more points.

A home equity loan gives homeowner’s cash in exchange for the equity they’ve built up in their property as a separate loan. They typically carry a lower interest rate than personal loans because, when you get

Home equity loans are often structured as lines of credit with variable interest rates and payments which make them less predictable. Borrowers should consider obtaining a copy of their credit report before going through the process of applying for either loan, to be sure it is the right decision for them.

What are the benefits of refinancing?

Refinancing can be beneficial to homeowners in many ways. Whether you are looking to lower your mortgage payments or access equity in your home to pay for necessary upgrades, a child’s education, or collect some extra cash for the upcoming holiday season, a refinance can help you access cash quickly.

Visit our blog post on the Top 5 Reasons to Refinance here.

To learn more about the different methods of mortgage loan refinancing and to determine which one is right for you, contact a VanDyk Loan Originator today!

Mortgage News Matters

What are the Benefits of Buying a Foreclosed Home?

Buying a foreclosed home can be beneficial to home buyers in a variety of ways. The main one being – it’s attractively low price. With most sold well below market value, foreclosed homes could be a great option for homebuyers on a budget!

What is a Foreclosed Home?

A foreclosed home is a property that has been repossessed by the bank or government after the homeowner stops making payments and defaults on their loan.

Types of foreclosures:

  • Pre-foreclosure
  • Short sale
  • Sheriff’s sale
  • Real estate owned

How to find a foreclosed home?

Potential homebuyers who are looking to purchase a foreclosed home can look to some government-backed websites or simply take a drive throughout different neighborhoods, as they would for any other home. Another option is speaking to a real estate agent who may be more knowledgeable of foreclosures in the buyer’s preferred neighborhood.

What are the benefits of purchasing a foreclosed home?

  • Lower than market value price
  • Lower down payments
  • Lower interest rates
  • Elimination of appraisal fees and some closing costs

A foreclosed home is typically set at a lower than market value price. This is a great option for those homebuyers who are looking to purchase but cannot afford many of the homes on the market. Along with this, foreclosed homes tend to have lower down payments and lower interest rates, making them even more affordable. Lastly, when purchasing a foreclosed home, buyers can eliminate appraisal fees and some closing costs, making the home buying process just that much simpler.

To learn more about foreclosures and the process of buying one, contact a VanDyk Loan Originator today!

Mortgage News Matters

How to Build and Maintain A Good Credit Score

A good credit score is essential to any new or prospective homebuyer. It’s what will show your lender the likelihood that you will be able to pay back your debt. So, we’d say it’s pretty important!

The first step towards building and maintaining a good credit score is to first determine your credit standing. You can do this by obtaining a free copy of your reports from annualcreditreport.com. Once you have this information, carefully look over your report and take note of any errors that you find. These errors can then be disputed with the credit bureaus.

If you find that you have a below-average credit score, it can be refreshing to know that most credit blunders disappear from your credit report every 7 years. For more information on understanding and managing your credit score, check out our Credit Clean-Up Guide.

To better assist you in your credit building process, we’ve listed a few techniques below:

  • Apply for a secured credit card. The purpose of a secured credit card is to build enough credit to qualify for an unsecured credit card, which offers more benefits to its borrowers. A secured credit card requires a deposit to open. And the deposit is typically the same number as the borrower’s credit limit on the card. These work the same as a credit card and you won’t incur interest as long as you pay your balance in full.
  • Credit-builder loans. These are a type of forced savings program where the lender holds the money you borrow in an account that isn’t released to you until the loan is repaid. This can be a great option for those who are looking to build their credit.
  • Becoming an authorized user on a friend or family member’s credit card who is currently in good credit standing. Many will start building their credit by becoming an authorized user on a relative’s credit card. This option adds their payment history to your credit, showing that you are a reliable borrower – if they are in good standing.
  • Get a co-signer. If you have a family member or friend who is in better credit standing, you can also ask them to be your co-signer. This means that if you default on your loan, they are responsible to pay for it, so it’s best to be upfront with your co-signer about all the terms.
  • Have a long history of credit (start building credit early). The best way to start building good credit is to, well, start building your credit. Make sure that you start as soon as you can and maintain good practices like paying regularly and on time.

Once you’ve built up a good credit score, it may be helpful to follow a few techniques you can use to maintain.

  • Pay regularly and on time. One of the most effective ways to maintain a good credit score is to make sure you are paying your bill regularly and on time. To help you with this, consider setting up automatic payments so that you don’t miss a loan or credit card payment.
  • Maintain reasonable credit. Experts recommend keeping credit at no more than 30% of your credit limit if you can help it. If you must go over 30%, make sure you pay it back down to that amount as soon as you are able to.
  • Only apply for the credit you need. Think of it like a loan, only borrow what you need. Anything more is too much.
  • Pay minimum monthly balance on time. Paying on time shows your consistency and reliability as a borrower.
  • Keep old credit cards open. Closing old cards can have a negative effect on your credit, so it’s best practice to keep them open even if you no longer use them.

*The three major credit bureaus – Equifax, Experian, and TransUnion – have recently extended their offering of free weekly credit reports through April 22, 2022, in response to the COVID-19 pandemic. *