Is a Cash-Out Refi Better Than a HELOC?

Are you curious about whether a cash-out refi or a HELOC would be a better way to meet your financial needs? Bellco FCU can help you decide.

Originally known as the Bell Telephone Credit Union, Bellco FCU, a member-owned, not-for-profit federal credit union, opened its doors in 1938 and continues to provide unique financial products and services to individuals and small businesses in Berks County.

Just like a bank, credit unions accept deposits, make loans and provide a wide variety of other financial services. But as member-owned and cooperative institutions, we provide a safe place to save and borrow at reasonable rates with exceptional customer service.

Membership in Bellco FCU is open to individuals who live, work, worship, or attend school in Berks County, PA. Simply open a Member Savings account with as little as $5.00 and set up your membership in a few simple steps.

Why Choose a Cash-Out Refinance?

A cash-out refinance is when you refinance your original mortgage for more than you owe and replace it with a new mortgage, taking the difference in cash. It’s called a “cash-out refi” for short and is one way to turn your home equity into cash.

The most common reasons for getting a cash-out refi are to pay for home improvements, which will add to your home’s value, or to free up money for a down payment on a second home. 

Since you will be replacing your current mortgage with a new loan term (15 or 30 years), interest rate and monthly payment, the best time to do a cash-out refinance is when you can lower the interest rate on your first mortgage. 

Why Choose a HELOC?

A HELOC, or Home Equity Line of Credit, can be another excellent source of funds if you need major home repairs, such as replacing your roof, central air conditioning, furnace, old cast-iron plumbing, or when remodeling a kitchen. It may also be a good option if you’re paying for a child’s college tuition. Pay the tuition, pay off the amount, and then borrow from the line of credit again next semester. 

This loan enables you to borrow against the equity in your home (usually 80% to 90% of your home equity value), on an as-needed basis. Similar to a credit card, you can repeatedly pay back and borrow from the line of credit whenever you need the money during what is called a “draw period,” (typically 5 or 10 years).

During the draw period, you will be required to make modest payments on the HELOC. As you pay down the principal, your credit line revolves, and you can use the funds again and again for the duration of the draw period. When the draw period ends, you will enter a repayment period during which you will pay off the debt more aggressively (typically over 10 years).

Because Bellco FCU is smaller than a traditional bank and exists only to serve the members of our community, decisions on lending and other services are made internally, right here in Pennsylvania, which can speed up the lending process.

If you need help deciding whether a cash-out refi is better than a HELOC, get in touch with Bellco FCU where you’ll enjoy the lowest possible loan rates and the best service!