Cash-Out Refinance vs HELOC

[diesel]

Hi everyone.  I am helping some friends and I need some input.  They have a good bit of equity in their home.  There are a couple maint./home improvement things that need to be done.  They are considering using some of that equity to finance the work that needs done.

I know I don't have any concrete numbers yet but my question is this:  Is there a rule of thumb on when to use a HELOC vs Cash Out Refinancing?  What should they consider when making the decision?  With rates so low I was thinking it may be worth it to refinance but I wasn't sure if they should consider a "break even" time frame or anything along those lines.

Thanks for the help!

[sammybiker]

@diesel  HELOC can usually be issued very quickly (couple of weeks) where as a refi you're closer to 90 days, depending on how backed up your bank is.  The last HELOC I did, the bank didn't even want tax returns.  HELOC will quite a bit higher on the interest but usually interest only payments. They need to be disciplined about paying it off if they go that route. 

If they have the time to go the refi route, especially with long term rates as low as they are, they should just do that.

I'm working a few long cashout refis now and my loans are only a couple years old.  I'm taking out $250k in cash and my monthly payment will still be lower than it is now.  Insane.

[srad]

@diesel 
I'm working a few long cashout refis now and my loans are only a couple years old.  I'm taking out $250k in cash and my monthly payment will still be lower than it is now.  Insane.

Insane is right, I looked at how much i could pull out too, its was a good 6 figure number as well.  I ended up just going for the lower payment.  I don't have anything i want to buy at this time and that extra cashflow is going to be very nice.

So for your friend, unless they plan to sell in the next 3-4 years  i'd say cashout refi.  Lock in these incredible 30 year rates. 

[Dicey]

Another vote for cash-out re-fi.

[LostGirl]

I just did the same math and came up with a hybrid option. We are planning a major reno and wanted to finance in lieu of depleting our cash savings. I talked to a broker about the cash out refi and we could take out some $$ but above a certain value, the rate rose 0.25% for the loan. So we are doing a small cash out and refinance, bringing our overall rate and payment down (even with the cash out) and if we end up needing more, we will execute a HELOC for the balance. We would then choose to pay off the HELOC more aggressively since it will be at a variable rate. 

I don't know how @sammybiker is taking out $250K more and his payment is still less, unless its a longer term than a few years ago. We are getting a rate .875% lower than currently, cashing out $70K and its $100 less than before.