Should I refinance or take a HELOC?

What a cash-out refinance actually does

A cash-out refinance pays off your existing mortgage with a new, larger one. The difference between the new loan and the old loan comes back to you as cash at closing.

Example: home is worth $700K. Existing mortgage balance is $350K. You take a new $500K cash-out refi at 80 percent LTV. You walk away with $150K cash (minus closing costs).

• Replaces your existing mortgage entirely.
• Closing costs typically 2-4 percent of loan amount.
• Single fixed monthly payment.
• Up to 80 percent LTV typical (some programs allow more).

What a HELOC actually does

A HELOC (Home Equity Line of Credit) is a second mortgage in the form of a line of credit. You keep your existing first mortgage. The HELOC sits on top.

You can draw, repay, and draw again over a "draw period" (typically 10 years). After the draw period ends, you enter a repayment period (typically 10-20 years).

• Existing mortgage stays in place.
• Closing costs much lower than a refi (sometimes zero).
• Variable rate (usually prime + margin).
• Interest charged only on the amount you draw.
• 5-Day HELOC available through PRMG with fast funding.

When cash-out refi wins

• Current rate is higher than today's market rate. If your existing mortgage is at 7.5% and you can refi to 5.5%, the savings often justify replacing the loan even before considering cash-out.
• You need a large lump sum. Funding a home renovation, paying off high-interest debt, or buying a second property all benefit from a single big disbursement.
• You want a fixed payment. No variable-rate exposure. Same monthly payment for the next 30 years.
• You want to stretch the new balance over 30 years. Lower monthly payment than a HELOC repayment period.

When HELOC wins

• You have a low fixed rate on your existing mortgage. If you locked at 3.5% pre-2022, do NOT refinance. Keep the first mortgage. Use a HELOC for cash needs.
• You need flexibility, not a lump sum. Funding ongoing renovation, supporting a small business, or having an emergency reserve, all fit HELOC's draw-as-needed structure.
• You expect rates to drop. HELOC rates track prime; if rates fall, your HELOC rate falls automatically.
• You want lower closing costs. HELOCs often have minimal or zero closing costs.

The rate-trapped homeowner scenario

Millions of homeowners are sitting on 2.75 to 3.75 percent rates from 2020-2022. Refinancing into today's rate environment would more than double their monthly mortgage payment. For them, a HELOC is the only sane way to tap equity without giving up the low first-mortgage rate.

Ken can help structure a HELOC through PRMG's 5-Day HELOC product, designed specifically for homeowners who need fast access to equity without disturbing their first mortgage.

Frequently Asked Questions