Best Cash-Out Refi & Home Equity Loans 2017
We review and compare the Best Cash-Out Refinance and Home Equity Loan providers. Get access to your equity today!
Home equity loans, also called second mortgages, allow homeowners to borrow money by leveraging the amount of equity they’ve accumulated in their homes. The interest on these loans is tax-deductible up to $100,000. Home equity loans are divided into fixed-rate loans and home equity lines of credit (HELOCs).
Fixed-rate loans provide a single, lump payment to the borrower, which is repaid in fixed monthly payments over a set period of time. HELOCs are variable-rate loans that work a lot like a credit card. A maximum loan amount is determined, and the borrower can take out money against that credit line, as needed. HELOCs are divided into two periods—the draw period, in which you draw funds and only pay for the interest, and the repayment period, during which you repay both the principal and the interest. They have variable interest rates, based off an index rate with and additional markup that’s subject to your credit profile.
Either type of home equity loan can be an excellent way to obtain funds for home improvement, pay off and consolidate high-interest debt, or finance future earnings potential by paying for college or launching a small business. When choosing a lender carefully consider the terms, repayment plan, interest rates (some lenders have caps), and closing costs. If you take out a HELOC, another factor to think about is a conversion clause which essentially turns part of it into a fixed-rate loan.
The main issue with home equity loans is maintaining a cycle of debt, in which borrowers spend, borrow, and then continue to spend irresponsibly. Additionally, defaulting on a home equity loan could result in foreclosure, since they’re secured by your home. Finally, with HELOCs, watch out for initial interest “teaser” rates, prepayment penalties, and balloon payments at the end of the draw period.
Top 8 Companies
- Our #1 Choice, A+ BBB Accredited Company
- Rates as low as 4.09% APR
- Make your home improvements that add value to your home
- Get cash for a large purchase
- Pay for college
- Consolidate debt
- When banks compete, you win!
- Cash-Out Refinance from SoFi - Turn your home equity into cash.
- Perfect for high-interest debt consolidation, home renovations, & more.
- Access up to 65% LTV for any purpose.
- Payoff student debt & get up to 80% LTV
- Fast: Close in less than 30 days
- No Fees, No Catch! 2 Min Pre-Qualificaiton - No impact to your credit
- An Excellent Alternative to Home Equity Loans
- Must be 62+ and Own 50% of Your Home
- Free Information Kit on Pros & Cons
- Receive monthly payment, line of credit, or lump sum
- Loans insured by the FHA
- Approved Member of US Department of Housing and Urban Development
- Refinance to Take Cash Out
- Super low refinance mortgage rates
- A+ rating with the Better Business Bureau
- Experienced loan officers to guide you
- Over $8,000,000,000 Dollars in Loans Funded
- Loan from $25,000 up to $250,000
- Flexible terms of up to 15 years
- Does not affect your low 1st mortgage rate
- Fast closing in just days
- Cash out up to 90% loan to value
- A+ BBB Accredited
- Equal Housing Lender
- A+ BBB Accredited
- Equal Housing Opportunity Lender
- Multiple types of home equity loans offered
- Large network of lenders to choose from
- Get up to 5 free quotes
- Easy Eligibility Requirements
- Enhance Your Life with a Cash-Out Refinance from Rocket Mortgage
- Eliminate High-Interest Credit Card Debt
- Pay for College Tuition or Buy a Vacation Home
- Save time & avoid paperwork by sharing your finances online.
- #1 in Client Satisfaction by JD Power 6 Years in a Row!
How We Compare Home Equity Loans
For the purpose of evaluating home equity loans, we're looking at three different types of products in this category. A straight home equity loan is fixed or variable rate and a one-time lump sum disbursement that you pay back the principal and interest monthly as you would any mortgage. A home equity line of credit (HELOC) is typically a variable rate credit line with a set maximum that you can draw funds from and pay back as needed. As you pay back the principal, the funds become available again. But should you choose, you have the option of not paying back the principal and only being charged the interest on what you've withdrawn during the disbursement period -- usually 10 years. After the disbursement period, the funds are no longer available and whatever balance you have left must be paid back, as with any other loan. A cash-out refinance is the same as a normal mortgage refinance where you replace your existing mortgage with another that has more favorable terms and/or rates. However, in this scenario you also take a portion of your home's equity as cash and add it to the balance of the refinanced mortgage. Cash out refinances are not a separate loan like home equity loans and HELOCs, as they effectively replace your current mortgage.
When comparing a given financial institution's loan offerings, we look at many things. All loans have their associated fees, these include origination fee, appraisal fee, closing fee, application fee, maintenance fee, and whether or not a company wil waive any of these. We also look at the minimum and maximum loan size, as well as the maximum term and minimum fixed and variable rates. When it comes to HELOCs, we assess any annual fees and the length of the draw period. As for cash out refinance, we take into consideration the set of loan terms as a whole.
Some lenders will waive certain closing costs and fees, so it's a good idea to explore as many options and special offers as you can given this.
HELOC Annual Fees
HELOCs may have an annual fee, a cancellation fee, and also a transaction fee every time you withdraw money.
Max HELOC Draw Period
How long will you have access to your credit line.
Cash-out Refinance Terms
Cash out refinances work in much the same way first mortgages do. Loan terms offered could be 15 year, 30 year, etc, with fixed and variable rates as well: 15 year fixed, 30 year fixed, 30 year variable, etc.
To qualify for a home equity loan you must first, obviously, own your home. After this there are generally three factors a bank or lender is going to take into account. First is your loan to value ratio (LTV). This is expressed as a percentage and is a representation of your home's current appraisal vs. how much you still owe on the first mortgage. For example, if your home is currently worth $300,000, and the balance on your mortgage is $250,000, you would have a LTV of 83.33%. Traditionally, for home equity loans and HELOCs, lenders are going to want an LTV of 80% or less to even consider you. As with any lending transaction, your credit score will also be considered. However, since the home is the main source of collateral, score requirements are usually not as high as with personal loans and other products of the sort. We'll depict the minimum credit score acceptable for each individual institution should the information be available. Lastly, lenders will also be looking for a healthy debt to income ratio, basically how much you make vs. how much you owe.
Some other factors to take into consideration on the subject of qualification include:
- Primary Residence: The home you’re taking the loan out against must be your primary residence.
- Secondary Residence: The loan you’re taking the loan out against must be your primary residence or your secondary residence.
- Property Appraisal: Some lenders want there to be a physical inspection of the house before lending money.
- Proof of Employment: The person taking out the loan must prove steady employment and income.
To assess a home equity loan lender's accreditations, we've drawn together three separate topics: site features and technology, size and financial strength, and memberships/licenses/regulatory actions.
Total Originations (in millions)
While not specific to home equity loans since they represent all mortgage related activity, originations help determine the size and strength of the institution. This data represents 2013, the most current year provided by the Consumer Financial Protection Bureau. We'll also be looking at number of originations and average mortgage size.
Memberships & Accreditations
Some relevant memberships and accreditations for home equity loans, HELOCs, and cash out refinance include:
- FHA Approved Lender: The lender can issue loans insured by the Federal Housing Administration. Since these loans are federally insured, the company can typically offer better rates than a non-insured competitor.
- Federal Home Loan Bank Member: FHLBanks has a primary mission of providing member financial institutions with financial products and services that assist and enhance the financing of housing and community lending.
Nationwide Mortgage Regulatory Actions
Here we will list if the institution has received any regulatory or disciplinary actions. These are complied from the NMLS and can include adjudicated criminal, regulatory, civil judicial, or civil regulatory actions.
To measure the consumer experience, we've looked at two main data sources, the total Consumer Financial Protection Bureau complaints, and the total CFPB complaints/originations. The Consumer Complaint Database collects complaints on a range of consumer financial products and services, and sends them to nearly 3,000 companies in order to give them a chance to respond. They don’t verify all the facts alleged in these complaints, but they do take steps to confirm a commercial relationship between the consumer and the company. It's important to keep in mind that larger lenders will naturally have more complaints. In light of this, looking at the ratio of complaints to number of originations is a better indicator of how many complaints they receive for each loan they handle. This number is computed by dividing the total complaints by the number of loan originations and then multiplying by 100. Data reflects all mortgage related complaints and is from the year 2013, the latest data available for both metrics.
Site Features & Technology
Companies that offer the following facilities rank highly with us, as borrowers increasingly are looking for a fully online transaction.
- Home Equity Calculator: Allows you to calculate the equity in your home and how much you can borrow.
- Online Application: Most sites will allow you to start the application process online.
- Online Quotes: Can you view the rates or rate estimates online after you fill out your personal details? Or does the company just use the online submission form as a way of obtaining your phone number in order for an agent to call you?
Customer Questions & Answers
What is a home equity loan?
A home equity loan is a form of loan which uses the equity of a home as collateral. Borrowers typically use these loans as a means of covering critical expenses. These can include tuition costs and out-of-pocket medical bills.
What is home equity?
Home equity is the portion of your home that you actually own. As you pay off your mortgage, the value of ownership you've built up in the house increases. For most people, their home equity is their largest source of net worth.
How does a home equity loan work?
A home equity loan uses your home equity as collateral for the loan. The lender will determine the maximum loan amount based on the value of your property, and you make monthly payments until the loan is paid off. The value of the property is established by an appraiser from the lending company.
Are home equity loans tax deductible?
The interest from a home equity loan may be tax-deductible. In order to qualify, the loan must be secured by your home and must have been obtained after Oct 13, 1987. The total deduction limit depends on what the loan money is used for. Loans used to buy, build, or improve your home have a $1,000,000 limit. Loans used for other purposes have a $100,000 limit.
How big of a home equity loan can I get?
Typically, lenders will allow you to borrow between 80%-90% of your home’s equity. So if your home is worth $300,000 and your mortgage balance is $150,000, you have $150,000 in home equity. Banks might offer you loans of $120,000 - $135,000. These are general figures not including taxes and associated fees.
What can you do with a home equity loan?
There are several uses for home equity loans. To name a few, they can be used for renovating a home, financing education, generating retirement income, paying off previous debt, or for investing.
What is a HELOC?
A HELOC is a Home Equity Line of Credit, which is when you borrow money using your home equity as collateral, or a guarantee for your loan. Your lender sets a borrowing limit, which is used as a line of credit: using the money, paying it off, and then borrowing again as needed.
How does a home equity line of credit work?
A home equity line of credit advances you a credit line using your home equity as collateral. You can then borrow up to the credit limit during a set time called the draw period. Monthly payments are usually just interest and the whole loan becomes due at the end of the draw period.
What is a cash-out refinance?
Cash out refinancing is the refinancing of a pre-existing home mortgage that allows the borrower to turn built-up home equity into cash. If the amount refinanced is greater than that of the original mortgage, the borrower will then be given the cash difference.
Should I get a home equity loan?
The pros and cons of home equity loans depend on what you intend to do with the money. With home improvements and major, necessary purchases the answer is almost always yes. If you intend to use the money as retirement income, for investments, or to pay credit card debt then the answer is more complicated.
Using a home equity loan to finance home improvements, like updating kitchens and bathrooms, or rebuilding a garage or basement, can increase the value of your home in the long run and therefore the overall equity. Paying off high interest credit cards or loans with home equity might seem a good idea on the surface, but it doesn’t get to the root of the problem of how this toxic debt is accumulated in the first place. Given the fact that debt is so easy to incur, you can effectively just be digging a bigger hole for yourself.