Home Equity Loan Vs. Mortgage Refinance
A few useful financial tools to consider using are home equity loans and mortgage refinances. What you think you should use and decide to do depends on your circumstances and ultimate goals.
Start by learning more about home equity loan vs. mortgage refinance so you can determine which is right for you. There’s a lot to think about and weigh before you choose to understand the pros and cons of each and what to be aware of as well as the long-term consequences.
Home Equity Pros & Cons
There are some pros of home equity loans that you may be interested in taking advantage of depending on your situation. First, they offer relatively lower interest rates and have predictable payments. While more expensive than a primary mortgage, there are potential tax benefits. The application process is also costlier and longer.
Mortgage Refinance Pros & Cons
As far as a mortgage refinance, there are pros and cons to this option as well. The upsides are that you could pay off your loan faster and you might spend less over the life of the loan. Cashing out equity can cover some expenses and you do have the potential to save more each month. As far as the downsides, you might not break even and your monthly payment could even increase. It’s a lot of effort for possibly not a lot of savings. Finally, you may end up reducing the equity in your home.
Home Equity Loan Vs. Mortgage Refinance
If you need access to cash then a home equity loan may be a less expensive option for you. However, refinancing is an excellent way to save money on interest and lower your monthly payments. So, which is right for you?
Begin by determining your primary goal. If you want to pay off your mortgage faster or lower your monthly payment then a refinance might be best. On the other hand, consider a home equity loan if you want cash for improvements or to purchase something you’ve always wanted. Regardless, you should always compare closing costs and take the time to shop rates. While home equity loans typically have lower closing costs than refinance loans, they often have higher rates than mortgage rates.
Think through how long you plan to live in your current home. If you’re not going to stick around for the long run then a home equity loan may be your best option. The reason being is that you might not recover the closing costs on a refinance loan. For a one-time source of cash and to get new mortgage rates then think about refinancing. However, a less expensive choice can be a home equity loan if your mortgage now is satisfactory.
How to Get Started & Where You Can Apply
To get started with a mortgage refinance, you should make sure you have at least 20% equity in your home. Shop for the best mortgage refinances rate available. It will require you to apply for a new mortgage with either your current lender or a different one. For a home equity loan, you’ll need to have at least 15 to 20% equity in your home. The first step is to take a financial inventory and review your creditworthiness before working with a lender who will need this information to approve the loan.
