Refinancing vs. Home Equity Loans
If you are considering tapping into your homes equity to consolidate bills, save money, or do home improvements, there are primarily two options to think about: a full refinance or a home equity loan. While each option can benefit you, here are some things to debate so that you can make the best decision:
DO YOU HAVE A REALLY LOW FIRST MORTGAGE RATE?
If you already have a very low first mortgage rate, it may not be wise to cash-out refinance. If your rate is going to increase more than one point, it probably will cost you too much in interest over the life of the loan to make a full refinance worthwhile.
YOU WILL GET THE LOWEST RATES ON A FULL REFINANCE
If saving money is your primary concern when refinancing, especially when debt consolidating, a full refinance will give you the lowest fixed rates. However, this option will not give you the flexibility that home equity loans often do.
HOME EQUITY LOANS ARE CHEAPER
With moderate to excellent credit, you can usually obtain home equity loans with little or no closing costs. The money you save upfront generally compensates for the long term costs associated with the higher rates that these loans have.
HOME EQUITY LOANS ARE FLEXIBLE, BUT RISKY
Most home equity loans, especially home equity lines of credit (HELOCs), feature adjustable rates tied to the prime rate. While they offer you the flexibility of taking what you need and only paying on what you take, these adjustable rates can rise rapidly and cause you a harsh financial burden. When considering an adjustable rate equity mortgage, make sure that you budget yourself to weather the worst.
To sum up, both of these options offer you great opportunities to use your homes equity for a financial benefit. You should consider a full refinance if you can lower your first mortgage rate considerably, but should probably seek an equity loan if you already have a fixed rate below the current par rate. Home equity loans usually come with lower closing costs, are generally better for you if you want flexibility to take money only when you need it, and give you the option to access your equity again as you pay off previous draws.
Preferred Mortgage Refi Companies Online - We maintain a list of recommended mortgage companies online and update the list regularly.
25 Things to Know Before Getting a 2nd Mortgage or Home Equity Loan- Read this article to find out some more information on home equity loans.
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