Renovating and Maintaining

HELOC vs. Cash-Out Refinance

How to use your home's equity to pay for home improvements

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Are home improvements on your mind? Quick: Before you call the contractor or start shopping for shiny new bathroom fixtures, make sure you have a plan to pay for it.

You may be able to tap into the equity you already have in your home and borrow against it. The equity in your home is the value of your home … minus what you still owe to your mortgage lender.  Two ways to do this are by using either a Home Equity Line of Credit or a Cash-Out Refinance.

  • A Home Equity Line of Credit, or HELOC, works almost like a credit card, allowing you to withdraw funds as you need them and pay them back over time. 
    • You generally won’t have to pay closing costs, (although depending on the lender, there may be a requirement that the account be open for a certain number of years to avoid closing costs). 
    • Your funds are available quickly— often in just a few weeks. 
  • A Cash-Out Refinance works by refinancing your existing mortgage to a higher loan amount—then cashing out the difference. 
    • You’ll still have the ease of just one monthly mortgage payment to manage. 
    • Plus, you may be able to roll the closing costs into the loan (note that this may be subject to the lender's Loan to Value requirements).
    • It may even be possible to improve the terms of your current mortgage—like lowering your interest rate.

Because both options tap into the equity you have in your home, they tend to have lower interest rates than other borrowing options. And they can also be used for other purposes—like consolidating high-interest debt and other large purchases. 

Which one is right for you can depend on a few things, like how quickly you need the funds and if you want access to funds over time or in one lump sum.

Ready to make your home improvement dreams a reality?

Discuss the available equity in your home with a SunTrust representative, or apply directly online.

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