A Florida Refinance vs. A Florida Home Equity Loan
Are you considering a cash-out Florida mortgage refinance? Comparing it with the option of a home equity line of credit (HELOC)?
This is a common debate.
Follow along with this example to see if it helps your dilemma: you have a first and a second mortgage on your home. The first is for $246,500 and the second is for $46,500.
You took out two loans initially because you wanted to avoid private mortgage insurance, which you would have had to pay because the down payment on the house was less than 20 percent.
Can you open a HELOC while having a first and second mortgage? Or do I need you need to Florida refinance the two loans into one and then take out extra cash within the refinancing and then open the HELOC?
If you’d like to make some home improvements and pay off a credit card bill of $10,000, what would be the best approach for a resident that appraises for around $500,000?
Here’s a response to this sort of situation, one many owners in the Sunshine State can probably relate to: You can take out a HELOC that would be a subordinate loan to the existing first and second Florida mortgages, but the interest rate will reflect the fact that it’s third in line in a foreclosure.
A cash-out refinancing of the first mortgage to take out the existing second is another possibility. From there, you will have to decide whether to put a HELOC in place or take out enough additional cash to finance whatever amount you’re trying to finance with the HELOC. By your estimation, you have enough of an equity cushion to take this approach - assuming the improvements you’re financing won’t cost six figures.
The current advantage to a cash-out refinancing of the first mortgage is that first mortgage rates are about 1.75 percent lower than the interest rates on Florida home equity loans and home equity lines of credit.
You’ll pay higher closing costs on a new first mortgage, and you have to take the money out all at once, versus as needed with a HELOC. However, with your goal of restructuring credit card debt and financing home improvements, getting the money at closing shouldn’t be an issue.
Once you’ve restructured the credit card debt, make it a goal to stay current on your cards. That means paying off the balance each month, not making the minimum monthly payment.
SOURCE: Don Taylor of Bankrate.com
