Guide for Mortgage Lenders: Comparing Cash-Out vs. Home Loan vs. HELOC's

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July 6, 2022 | By RGR Marketing Blog

Understanding the Various Types of Mortgages Available to Your Clients

From home equity loans and home equity lines of credit (HELOC) to cash-out refinances, today’s homeowners have several options for taking advantage of the value that they have accrued in their homes. As a mortgage lender, part of your job is to make sure that the type of refinance your client is interested in is the right one to suit their wants and needs.

Here is a refresher guide with the important points you need to consider when deciding which might be best product for your client.

Can the Homeowner Afford a Second Loan Payment?

When comparing a cash-out refinance, a HELOC, and a home equity loan, it is important to remember that in most cases, two out of the three options involve the homeowner acquiring a second mortgage payment (home equity loan and HELOC). Only a cash-out refinance replaces the original home loan with a brand-new loan.

So, if the homeowner wants to maintain a single mortgage lifestyle, or they simply can’t afford a second monthly loan payment, then a cash-out refinance should be their primary choice. Unless the homeowner’s home is paid off, then any of these options would be their primary loan payment.

The Basics: Cash-Out, HELOC, and Home Equity Loan

Cash-Out: A cash-out refinance replaces the homeowner’s original mortgage with a new home loan that is greater than what they currently owe on their old mortgage. The maximum amount of cash the homeowner can access is the difference between the current loan amount and the new loan amount. This type of refinance provides the homeowner with a new home loan, cash, and a lower interest rate than what they were probably paying previously.

HELOC: A home equity line of credit is unlike the other two options because it does not provide the homeowner with their cash all at once. Instead, the homeowner can borrow what they need when they need it and then pay it back plus interest in the form of a second monthly payment for a designated repayment period. Once fully paid, the homeowner can borrow again and repay again. You then repay what you borrowed plus interest during the repayment period. Unlike most home equity loans and cash-out refinances, HELOCs usually come with adjustable rates, so the borrower’s monthly payments will vary.

Home Equity Loan: With a home equity loan, a homeowner can borrow a lump sum not exceeding the value of their equity. Unlike a cash-out refinance, this type of loan doesn’t replace the original mortgage. It works as a second mortgage that the borrower pays back at a fixed rate. So, the borrower will need to make payments on their home equity loan in addition to their regular monthly mortgage payments (unless their home is paid off).

Interest, Closing Costs, and Other Differences Between a Cash-Out, HELOC, and Home Equity Loan

Interest rates for cash-out refinances tend to be higher than for standard rate and term refinances, but they tend to be lower than both HELOC and home equity loan rates.
The closing costs for a cash-out refinance is generally higher than they are with a HELOC or home equity loan because a cash-out refinance is essentially a brand-new mortgage.
Cash-out refinances are typically easier to get approved for than HELOCs and home equity loans.
The repayment period for cash-out refinances can be extended to 30 years whereas with a home equity loan, the payment period is usually no longer than 15 years. The repayment period for a HELOC can vary, with most being between 10 and 20 years.

Similarities Between a Cash-Out, HELOC, and Home Equity Loan

For a borrower to qualify for any of these three refinance types, they will usually need an after-transaction loan-to-value ratio of 90% or less.

Borrowers can legally use the money they get from their home equity as they see fit, but some lenders will only approve these types of refinances for those using the money to make value-adding home improvements or for debt consolidation.

Each of these refinances are essentially a mortgage, so failure to make payments could lead to foreclosure.

Top Considerations for Homeowners

Before your client makes their refinance decision, it is important for them to consider all the pros and cons of each mortgage product to ensure they are getting the right solution for their unique situation. Some of the things they need to keep in mind can include:

What are the current mortgage rates?
How much do they need to borrow?
What is their reason for refinancing?
How long are they planning on living in the home?

More Homeowners Want to Refinance: RGR Marketing Helps You Find Them

With interest rates climbing, more and more homeowners are looking to refinance before they get too high. Many also want to take advantage of the equity they have built up, making cash-out refinances, HELOCs, and home equity loans among the most popular products in the real estate business.

If you are looking for a source of high-quality mortgage leads specifically targeting refi prospects, then RGR Marketing has them. At RGR Marketing, we can provide your mortgage business with exclusive, high-quality leads that have been scrubbed and verified for accuracy. We have more than 20 years of experience helping mortgage lenders connect with the prospects they need to succeed.

Get ahead of the refinance trend and contact RGR Marketing today. We’ll provide you with the exclusive, targeted leads you need.

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Understanding the Various Types of Mortgages Available to Your Clients

Can the Homeowner Afford a Second Loan Payment?

The Basics: Cash-Out, HELOC, and Home Equity Loan

Interest, Closing Costs, and Other Differences Between a Cash-Out, HELOC, and Home Equity Loan

Similarities Between a Cash-Out, HELOC, and Home Equity Loan

Top Considerations for Homeowners

More Homeowners Want to Refinance: RGR Marketing Helps You Find Them

Start making more
money today!

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Understanding the Various Types of Mortgages Available to Your Clients

Can the Homeowner Afford a Second Loan Payment?

The Basics: Cash-Out, HELOC, and Home Equity Loan

Interest, Closing Costs, and Other Differences Between a Cash-Out, HELOC, and Home Equity Loan

Similarities Between a Cash-Out, HELOC, and Home Equity Loan

Top Considerations for Homeowners

More Homeowners Want to Refinance: RGR Marketing Helps You Find Them

Start making more money today!

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