Core Insights - Home equity can be utilized for large expenses through cash-out refinance or home equity line of credit (HELOC) [1][9] - Home equity is calculated as the property's value minus the remaining mortgage balance, with lenders typically requiring 10% to 20% equity to qualify for these products [2][3] Cash-Out Refinance - A cash-out refinance involves taking a new mortgage that pays off the existing mortgage and provides a lump sum to the borrower [4] - Borrowers can choose between fixed or adjustable interest rates, with fixed rates providing stable monthly payments [5] - Pros include having only one mortgage to manage and the ability to use the lump sum for various purposes [8] - It may be suitable for paying off high-interest debt, as it can lower overall monthly payments [18][19] Home Equity Line of Credit (HELOC) - A HELOC allows access to a line of credit rather than a lump sum, with the ability to borrow up to 80% or 90% of the property's value [9][24] - It consists of a draw period (up to 10 years) where only interest payments may be required, followed by a repayment period [11][12] - Pros include flexible access to funds and potentially lower closing costs compared to cash-out refinances [16] - It may be more appropriate if the current mortgage has a low interest rate and only a small amount is needed [22][23] Comparison of Cash-Out Refinance and HELOC - Cash-out refinance replaces the existing mortgage and provides a lump sum, while HELOC is a second mortgage with a credit limit [25][26] - Cash-out refinance may be better if mortgage rates have dropped or if a large sum is needed, while HELOC allows for borrowing only what is used [27][24] - Both options have distinct qualification requirements and implications for debt management [10][17]