Homeowners have three convenient ways to pay for large, even unexpected, expenses—a cash-out refinance, home equity loan or home equity line of credit (HELOC). All three are convenient sources of cash, but which one is right for you will depend on your circumstances and what you’re trying to achieve. Borrowing against the equity, whether through a loan or line of credit, can be less expensive than other forms of personal credit. A cash-out refinance, on the other hand, makes sense if you’re shopping for better mortgage terms.

Which option is right for you?

Here are some important things to think about when deciding between a home equity loan, a HELOC and a cash-out refinance:

  • Determine how much equity you have
  • Decide how much you need to borrow
  • Think about how long you’ll need to repay
  • Compare fixed-rate and variable-rate terms

The amount of money you borrow through either a 2nd lien home equity loan or HELOC is based on a percentage of your home’s value, minus the remaining balance on your mortgage. The terms of your original mortgage do not change. With a cash-out refinance, however, you’re taking out a new, larger first mortgage — an attractive option if you need a large sum of cash and either a lower rate or a different repayment schedule.

Home equity loans and cash-out refinances typically are used to obtain large, one-time amounts of cash. A HELOC works best if you need to borrow variable amounts over time because you access available funds only when you need them.

The repayment period for equity loans and refinances are flexible and can be extended as long as 30 years. With a HELOC, you can pay off the amount owed at any time, but after the 10-year draw period any outstanding balance is converted to a principal plus variable interest loan with a 20-year repayment schedule.

Home Equity financing can be a lower-cost option because there are no closing costs. Rates for a home equity installment loan may be higher than for a line of credit but the term is usually longer, so your monthly payments may be similar. HELOCs feature variable rates that may start lower but could rise along with interest rates. A cash-out refinance gives you the chance to lock in a low fixed rate, but closing costs could offset some of the savings.

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Disclosures

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

The Consumer Pricing Information disclosure lists fees, terms and conditions that apply to U.S. Bank personal checking and savings accounts and can be obtained by visiting a branch or calling 800-872-2657.

Home Equity Line of Credit: The Annual Percentage Rate (APR) is variable and is based upon an index plus a margin. The APR will vary with Prime Rate (the index) as published in the Wall Street Journal. As of November 6, 2023, the variable rate for Home Equity Lines of Credit ranged from 8.95% APR to 13.10% APR. Rates may vary due to a change in the Prime Rate, a credit limit below $50,000, a loan-to-value (LTV) above 60% and/or a credit score less than 730. A U.S. Bank personal checking account is required to receive the lowest rate, but is not required for loan approval. Customers in certain states are eligible to receive the preferred rate without having a U.S. Bank personal checking account. The rate will never exceed 18% APR, or applicable state law, or below 3.25% APR. Choosing an interest-only repayment may cause your monthly payment to increase, possibly substantially, once your credit line transitions into the repayment period. Repayment options may vary based on credit qualifications. Interest-only repayment may be unavailable. Loans are subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Credit line may be reduced or additional extensions of credit limited if certain circumstances occur.

An early closure fee of 1% of the original line amount, maximum $500, will apply if the line is paid off and closed within the first 30 months. Property insurance is required. Other restrictions may apply. An annual fee of up to $75 may apply after the first year and is waived or discounted with an existing U.S. Bank Platinum Checking Package or with enrollment in our Smart Rewards Program. Annual fees are assessed based on the tier in our Smart Rewards Program on your HELOC anniversary date. Please refer to your Smart Rewards terms and conditions for more information on tier assignment.

Home Equity Loan: As of March 15, 2024, the fixed Annual Percentage Rate (APR) of 7.65% is available for 10-year second position home equity installment loans $50,000 to $99,999 with loan-to-value (LTV) of 60% or less. Rates may vary based on LTV, credit scores or other loan amount. In order to receive the lowest rate advertised, a set-up of automatic payments from a U.S. Bank personal checking or savings account is required but neither are required for loan approval. Customers in certain states are eligible to receive the preferred rate without having automatic payments from a U.S. Bank personal checking or savings account. Loan payment example: on a $50,000 loan for 120 months at 7.65% interest rate, monthly payments would be $597.43. Payment example does not include amounts for taxes and insurance premiums. The monthly payment obligation will be greater if taxes and insurance are included and an initial customer deposit may be required if an escrow account for these items is established. Home equity loans not available for properties held in a trust in the states of Hawaii, Louisiana, New York, Oklahoma and Rhode Island. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Property insurance is required. Other restrictions may apply.