Cash-out refinance or home equity line of credit: Which one should I use?

Your home can be a powerful source of ready cash to fuel financial growth, add value to your property, or even provide a cushion should an emergency occur. Refinancing your mortgage and taking a home equity line of credit out on your home are two ways to make that capital available to you. HELOCs and refis are quite different from each other, though, so knowing which one fits your strategy best is important. In this episode, Pierre and Michael talk about the attributes of each and what situations might be best fit for either of them. Links mentioned: www.roofstockacademy.com  --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Pierre: Hey, everyone, welcome to the Remote Real Estate Investor. My name is Pierre Carrillo and today I am joined with…   Michael: Michael Albaum…   Pierre: ….and today we're going to talk about refinancing and HELOC and which ones make more sense. So let's jump in.   How's it going, Michael?   Michael: Good here, I was telling you yesterday, my van broke down in the middle of California. So I had to get that taken care of and get a lift home from a buddy of mine…   Pierre: In my hometown?   Michael: In your hometown. That's right, that's right. We were smoking off the highway. So he said, oh, we got to pull over and get this thing fixed and it was going to be a week to diagnose it and get parts. So we just said let's leave it down there and then a buddy of ours was able to give us a lift home and we were like on our way home from being on the road for a month and a half. So we were super excited, super close and then wahh wahh wahh…   Pierre: Not usually the best place to get stuck, I left…   Michael: Yeah, if I had to point if I had to pick and choose it would not have been in this particular town. But that's okay, it's how it goes.   Pierre: All tight. Okay, so let's talk about refinance, what just roughly, what is a refinance? And why would someone want to use it.   Michael: So a refinancing that's not familiar is basically just getting a new mortgage on top of an existing one and it basically this new mortgage is going to replace the old one and so there are kind of there are two different types of refinances. One is called a rate and term refinance, where you're simply just changing the rates and the term of the loan and so if you have a 30 year fixed mortgage at 4%, and you go get a new 30 year fixed mortgage at 3%, because interest rates are better, but the loan balance remains the same. That would be a rate and term refinance, the other kinds of refinances called the cash out refinance and that's basically where you're actually you're getting money out of the transaction and so if you have that same 30 year fixed mortgage at 4% interest, and you have a balance of $200,000, but your home is appreciated significantly, or the property has appreciated significantly, you might be able to go get a new mortgage, a 30 year fixed mortgage at maybe the same 4% but for $300,000 and so that new mortgage is going to replace your old one, it's going to pay off the 200,000. But there's $100,000 left, that goes to you as cash in the form of tax free cash and so that can be a really, really powerful mechanism or lever to pull if you need access to cash and so those are kind of the two different types of refinances and how they work.   Pierre: So those both sound like awesome options. Why wouldn't everyone always just refinance?   Michael: Yeah, it's a really good question and a lot of people do they refinance, and refinance and refinance throughout the life of their prop