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Should I get a home equity loan, line of credit or refinance?

To pay for major expenses, you might want to put your home's equity to use with a home equity loan, line of credit or cash-out refinancing.

Home equity loan

A home equity loan can be a good idea if you have a specific project, know the exact amount you'll need and don't plan to borrow more in the near future. It's a one-time thing.

Keep in mind: You're taking out an installment loan with a fixed rate, term and monthly payment. Closing costs apply, but are typically lower than those of first mortgages.

Home equity line of credit

A home equity line of credit (HELOC) provides ongoing access to funding for a variety of needs. It helps when you don't know the cost of a major project yet or when you'll have multiple expenses over time.

Keep in mind: You're more flexible with this revolving line of credit. It features multiple monthly payment options allowing convenient ways to repay. An option to pay no closing costs is available (however closing costs are typically lower than those of first mortgages). You can use the line of credit for 10 years, followed by a repayment period.

Cash-out refinancing

Cash-out refinancing can provide you with a lump sum of cash and a new mortgage with one affordable monthly payment.

Keep in mind: You'll have just one mortgage—but less home equity than you have now. Compared to a home equity, cash-out refinancing can provide a lower fixed rate. Closing costs are also higher, so you'll need to stay in your home longer to recoup the expense.

Questions to help you decide

How much will you need to borrow?

If you're not sure yet, a HELOC might be the choice for you. If you know this amount, compare the interest, fees and costs on home equity loans and cash-out refinancing.

Do you have more expenses coming?

A HELOC will give you flexibility to meet big-ticket expenses in the future.

How long will you stay in your home?

With cash-out refinancing, you need to stay in your home long enough to recoup closing costs.

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Loans, lines of credit and credit cards are subject to credit approval.

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