Jessica Quindlen: [00:00:00] Welcome back to the Sound Cents Podcast. I'm Jessica Quindlen. Today we're discussing HELOCs versus cash out refinances. I have with us today, our Mortgage Production Manager, Jamie Slavin. Hello, Jamie.
Jamie Slavin: Hi there.
Jessica Quindlen: All right. So, let's just dive right in. What is home equity and how does it accumulate over time?
Jamie Slavin: Great question. This is one we certainly hear and see a lot, right? Equity is the balance in between your home's value and the loan balance, right? So historically homes appreciate on about a 4 percent appreciation rate conservatively. And as you pay your loan balance down over time, the value of the home increases and this is the equity in your home.
Jessica Quindlen: Okay. Fantastic. So that's a very easy way to explain it. Thank you. So how can a homeowner tap into this home equity that they have that's building over time?
Jamie Slavin: Sure. There's a couple of ways in which you can access the equity in the home. Two common loan programs that Ent Credit Union offers is a HELOC or a home equity line of credit and then a traditional cash out [00:01:00] refinance mortgage. Both have some distinctions that make them a little bit unique and different. But those are really the best two ways to access.
Jessica Quindlen: Great. Let's start with the home equity line of credit or HELOC. How does that work exactly?
Jamie Slavin: Sure. It's an open-ended, usually a variable loan product that allows you to access and repay funds on your loan balance over time. Generally, the terms are up to 20 years in duration. Most commonly they allow for draws and repayment schedules that will fit your lifestyle. And usually that's within that first 10 years. The second half will become really just a repayment timeline.
Jessica Quindlen: Okay, so just confirming, when you say first 10 years, that's first 10 years of having the HELOC, not first 10 years of having your mortgage?
Jamie Slavin: Yes, correct. Thank you.
Jessica Quindlen: Yep. What are the advantages of using a HELOC?
Jamie Slavin: Yeah, so like I said before, it's open-ended, so it's great for things like, you know, a do-it-yourself project. It allows for that interest only payment, or to be able to pay a portion of the loan as desired.
It's great for managing [00:02:00] surprise expenses or savings as well. So really kind of whatever your goal or requirement might be, it's really a great suggestion to get with a mortgage professional, uncover those needs and then select the appropriate product.
Jessica Quindlen: Fantastic. Okay. So then let's switch it up to the other one you mentioned a cash out refinance. What exactly is that? And how does that differ from a HELOC?
Jamie Slavin: Sure. Yeah. A cash out refinance is a closed in more traditional loan, which will consolidate payments and pay them back over time. These are great if things like, you know, credit cards or maybe a HELOC or any other consumer items have begun to eat away at the household balance sheet.
Because credit cards and things are, they really don't have a term on them, you could be paying the same payment forever and in some instances, it might be better to move over to a cash out refinance.
Jessica Quindlen: Okay. Interesting. All right. What are some of the advantages of choosing specifically a cash out refinance?
Jamie Slavin: Yeah. It's a set payment and savings over [00:03:00] time. So, it makes it a little bit easier to manage, especially on a fixed income or a stable income. Oftentimes mortgage interest is tax deductible on a first mortgage lien, where generally on a second lien or a HELOC type loan it's not. I would say to always consult your tax professional on that, but there are two pretty big and distinct things. What I would encourage people to do again, and I don't want to sound like a broken record here, but is really get with a professional, talk about those requirements, motivations, come up with the best plan for you and your life and then go ahead and move forward.
Jessica Quindlen: Fantastic. So how can someone decide between these two products?
Jamie Slavin: We've got some great resources in the way of education out on our website. So Ent.com. But then beyond that, we've got 38 loan officers across the state of Colorado that would be happy to walk any of our members or non-members through that conversation to determine what's best for them.
Jessica Quindlen: Fantastic. Well, that was, you know, a short and sweet conversation, but I really appreciate you taking the time to [00:04:00] differentiate these two options. I feel like as we move to this new year and spring, I think there's a lot of thought about remodeling or getting out of debt or all those kind of goals.
So I love having this for everyone. Is there anything else you'd like to add?
Jamie Slavin: Yeah. I think you know, we only transact on mortgages around every five years. We use our checking accounts, our credit cards and everything else every single day. So, with as highly complex and nuanced as mortgages can be, I think it's just really, really important to, again, reiterate we've got a team of professionals that are here that want to help you navigate your next financial journey and we'd love to be a resource for you.
Jessica Quindlen: Fantastic. Well, thank you so much, Jamie, for being here. It was great to have you.
Jamie Slavin: Thank you so much.
Jessica Quindlen: Thank you for listening to Sound Cents from Ent Credit Union. Be sure to follow our podcast as well as rate and review us. I'm Jessica Quindlen. I will see you next week, same time, same place.
Copied link to Clipboard!