Cash Out Refinance vs HELOC

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I own(ed) my property free and clear. I took out a mortgage for about 20% of the value of the property. Would the loan be classified as a refinance or a closed end home equity loan?


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First let me clarify the difference between a Home Equity Line of Credit (HELOC) and a Closed End Home Loan. A HELOC is a line of credit that works like a credit card. You can withdraw funds and pay them back as much as you like within the term of your loan. Interest is only paid on the money you withdraw. The interest rate is adjustable and usually indexed to the Prime rate.

With a “ closed end loan” you take a loan for one lump sum and will repay the loan with fixed or adjustable monthly payments, but do not have the ability to withdraw the funds once you pay them back. Either loan can be in 1st or 2nd position and both would be considered cash out refinance transactions. Be carefull though, because you can only write off interest on $100,000 if it is your primary residence.

Answered over 6 years ago
Mortage Guy
104 1

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