This is not an easy question to answer because it depends entirely upon the details and circumstances of the potential borrower and what they are trying to achieve.
Whenever anyone is looking to borrow equity from their home they could possibly do a refinance of their existing mortgage and then request cash back at the close of escrow.
Ideally they would be reducing their interest rate on the mortgage they are refinancing and then receiving the extra funds they requested and are happy with their decision.
They will have a mortgage payment to make each month and it might be larger than what they had been previously paying, because they have taken out cash from their equity and increased their loan amount, even if they reduced the interest rate.
The applicant will have to go through a lengthy Underwriting process, have excellent credit, job stability, cash reserves and enough income to meet the “debt to income” ratios and of course good FICO scores.
This can be a very stressful process as it is more difficult to qualify for traditional mortgages than it was in the past and a great deal of documentation must be “willingly” provided by the applicant to complete the loan process.
And of course, they will have points and fees included in their loan amount as well and depending upon the size of the loan and the interest rate they choose, those fees will vary.
But what if their current loan already has a low interest rate and they want to keep it?
They could consider a Second Trust Deed that would be at a Fixed rate, a Home-Equity-Line-of-Credit or if they are aged 62 or more, a reverse loan/HECM/Home Equity Conversion Mortgage.
Unlike a HELOC, an FHA HECM reverse mortgage will not record in a second position and any existing mortgages on the property will have to be repaid from the funds from the reverse loan.
I will discuss these last two options in my next post.