$100,000 home equity loan vs. $100,000 cash-out refinance: Which is better right now?
It's not simple to secure a credit card line worth six figures. And getting a $100,000 personal loan will come with strict requirements and criteria that need to be met.
Homeowners, however, have a comparatively simple way to borrow a large amount of money: their home equity. By using a home equity loan or cash-out refinance, homeowners can leverage their homes in a valuable and secure way. But the products work in different ways, and in today's unique economy in which inflation is rising again and interest rate cuts are paused, one may be better than the other to borrow $100,000.
So how can homeowners determine which is better for their situation right now? That's what we'll break down below.
Start by seeing how much equity you'd be eligible to borrow here now.
$100,000 home equity loan vs. $100,000 cash-out refinance: Which is better right now?
While there's often nuance and gray areas to account for when comparing financial products and services, there's a compelling case to be made for choosing a $100,000 home equity loan instead of a $100,000 cash-out refinance in today's climate.
The reason largely comes down to interest rates. The average mortgage interest rate as of February 12 is 6.95%, while the average home equity loan rate is 8.45%. So, it may seem cheaper to borrow $100,000 with a new mortgage loan. However, since cash-out refinancing requires the obtaining of a new loan to pay off the existing mortgage balance (the owner gets the difference between the two as cash), it will inherently require the homeowner to forego their existing mortgage rate. And since millions of owners currently have rates significantly under the 6.95% current average rate, it would dramatically increase their current mortgage payments.
Home equity loans don't come with this concern.
They will utilize the home's equity but they won't alter the existing mortgage rate or repayment terms. Borrowers won't even need to use the existing mortgage lender if they don't want to, as different banks often offer more competitive terms. And considering that home equity loan rates have largely fallen in recent months – at the same time mortgage rates rose again – this is a relatively inexpensive way to borrow $100,000 now, with repayments under $1,000 a month for qualified borrowers with 15-year terms.
And, unlike rates on home equity lines of credit (HELOCs), home equity loan interest rates are fixed, allowing borrowers to precisely determine how much they'll need to repay. They also won't need to worry about any interest rate climate volatility, as they would with a HELOC or credit card, with rates on both subject to move up and down right now.
Get started with a $100,000 home equity loan online today.
The bottom line
A $100,000 home equity loan, for many homeowners, could be preferable to a $100,000 cash-out refinance right now. But a loan isn't the only way to borrow equity. As noted, a HELOC could also be the right choice for those homeowners confident in their ability to make repayments on a variable rate product. And, if rates cool later in the year, HELOCs will become less expensive, while home equity loans will need to be refinanced.
Reverse mortgages, for homeowners over age 62, may also be beneficial for those who can't afford to make costly monthly repayments but still want to leverage their existing home equity. So be sure to explore all four – and crunch the numbers for each carefully to accurately determine the ideal way to borrow $100,000 worth of home equity right now.
