Asked by Ricardo  |  Submitted December 28, 2016

Is it better to refinance and pull out equity, or do a cash-out loan to do some home improvements? I have a 15-year loan with a $33,000 balance.

I have a 5.325 APR (only 7 years left on loan). My home equity is at 4% or lower.

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  Answers  |  1

December 28, 2016

Hi Ricardo. With a small balance the rate is less important than the transaction costs (closing costs). So it's important to know how much you want to pull out (and what the house is worth). A refi will cost you maybe $3,000 (rough guess). Most HELOCs have little to no closing costs. More importantly, as the balance falls on a HELOC, so does your payment, which isn't true for your fixed financing (I'm assuming it's a fixed rate). You actually have at least three choices: (1) Cash out refi, (2) add a HELOC or (3) use the HELOC to pay for the remodel and payoff the existing loan, which carries a higher rate.

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