There are pros and cons to both choices. And of course, everyone’s circumstance is different. Home equity lines (HELOC) are generally faster and cheaper to obtain. If you don’t have anything outstanding on your line, there is no payment due (and can be part of your emergency reserve plans). As you pay down on your HELOC, your remaining available credit increases. HELOCs tied to your checking account are a good overdraft protection vehicle. They cover short-term borrowing needs. Their rates float (unless you lock in with a home equity loan), and payment schedules can be interest only, a minimum payment (interest and principal) based on the outstanding balance or a payment based on an amortized basis such as a mortgage. With a variable HELOC, your payment will increase in a rising interest rate environment or decrease with a decreasing interest rate environment. HELOC interest caused by a withdrawal used for non-home-improvement purposes is an addback to the Alternative Minimum Tax calculations, so it may end up being nondeductible even if you are under the magic $100,000 HELOC balance. Refinancing your home mortgage and taking cash out can work if you had a variable or high rate of interest and you can fix the new loan at a lower rate. Your combined payment could be less than the sum of your old mortgage payment and a HELOC payment. Refinancing can be expensive, and can extend your mortgage payments longer than you intended. In both scenarios, I would advise you to discuss the tax implications with your CPA, regarding the reason for taking cash out with regards to the “original home acquisition debt” and “home equity” interest deduction rules.

First off, congratulations if you still have equity in your home. With the decline in real estate prices over the last several years, many find that they actually do not have any equity in their home. This is particularly true with those that mortgaged over 90 percent of their home’s value. Assuming that you actually do have equity, then the amount of money you need and the length of time over which you are going to pay it back will help decide whether you should do it with an equity line or through refinancing. There are significant costs associated with a complete refinance so unless you can decrease your interest rate by at least 1 percent, you may be wasting money. With home equity lines, many times local banks will pick up the closing costs so the expense involved is minimized. The problem today is that now banks are loaning less as a percentage of the value of your home and the fact that appraisal prices are down significantly. Many are finding that when they apply for an equity line, they do not have enough equity to qualify. Interest rates on mortgages have dropped significantly recently and will probably continue to do so over the next several months, so looking at refinancing may be worth your while. Another way to potentially save yourself some money is to look at appealing your home’s assessment. You can appeal the assessment every year by filing an appeal before year end for the following tax year. In order to appeal your assessment you must have documentation that the value has decreased. If you refinanced recently then you can use that appraisal as your documentation!

Here are the main questions you should be asking: What will the money be used for, and is it a good investment? What are the fees/costs that are associated with accessing the equity from your home? What are the differences in current interest rates between the home equity line and refinancing? How will the loan affect your income tax deductions? Are you able to handle the increase in monthly expense (new loan payment) with ease? Once you research these issues, and feel like you’ve educated yourself on the basics, you can sit down with your local banker or mortgage broker and get down to business.