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The video discusses three options for homeowners with equity in their property: do nothing, cash out refinance, or do a home equity line of credit (HELOC). A cash-out refinance allows homeowners to tap into their equity and pull out cash, but they will pay interest on the money they pulled out because it is added to the mortgage. The interest rate on a cash-out refinance is locked and won't fluctuate with the market. However, once the money is out, it's important to use it for something long-term to avoid losing value due to inflation. Cash-out refinances are typically more expensive than HELOCs due to the in-depth appraisal process.
A HELOC is like a credit card, and the limit is the amount of equity in the property that the bank feels comfortable lending. The interest rate on a HELOC is usually some form of the prime interest rate, which does fluctuate up and down, but it's usually pretty low. A huge pro of having a HELOC is that homeowners can access the money when they need it and put it back when they don't. It's a super cheap, inexpensive way to borrow money. However, the main and only con of having a HELOC is that it's a variable rate, and it will go up and down with prime rates. HELOCs are a great option for short-term investments or purchases, such as a pool or kitchen renovation, that can be paid back within 6-12 months. HELOCs can also be useful for fix-and-flip projects or as a bridge loan for short-term investments. Ultimately, the best option depends on the homeowner's exit plan and what they plan to do with the money.
The video discusses three options for homeowners with equity in their property: do nothing, cash out