Comparing home equity loans and mortgage refinancing

Many people choose to take out a home mortgage refinance loan or home equity loan after they have paid on their home loan for several years. There is a big difference between home mortgage refinancing and a home equity loan, however, that homeowners should be aware of. Both of these options can be used to draw money from the home's equity to pay for other expenses. Home equity is the value of the home minus the amount still owed on the home loan. If a homeowner has paid off $100,000 on their home loan and still owes $300,000, they have $100,000 in home equity that they can draw from.

If a homeowner chooses home mortgage refinancing, they can refinance the original $400,000 home loan and keep the $100,000 in cash once the new loan closes. A home equity loan is a bit different than home mortgage refinancing. In this case the owner keeps their original home loan and takes out a second loan for the amount of equity they wish to draw from. Every homeowner is in a different stage in life and financial situation, so everyone needs to assess their own wants and needs before deciding what is right for them. Whether choosing a cash-out home mortgage refinance or a home equity loan, homeowners should consider the speed, cost, rate and terms of the available lending options.

A home equity loan will close considerably faster than a home mortgage refinance, often in as little as five days. For homeowners that need fast cash, a home equity loan might be the best option. Home equity loan options usually require very minimal fees. Home mortgage refinancing, on the other hand, usually carries higher home loan fees and might also charge points. Since a home equity loan is technically a second home loan, it will usually have a higher interest rate than a cash-out home mortgage refinance. Homeowners who already have a low mortgage rate may still find it worthwhile to get a home equity loan, though. This is because home mortgage refinancing could cause them to lose the low rate they have.

Homeowners are generally limited to a term of 15 or 30 years with a home mortgage refinance. With a home equity loan there's also more flexibility and often shorter terms to choose from, which can greatly reduce overall interest rate costs. The cash received when owners refinance their existing home loan with a larger loan is based on the equity they've already built on the home. The cash amount is figured by subtracting the amount of the old home loan and fees from the new loan.

A cash-out home mortgage refinance may not be available for all types of property. Home mortgage refinancing and home equity loans are two options that homeowners have when they are short on cash. The money from these loans can be used for medical expenses, home repairs, college tuition costs and other large expenses. It is important to consider these home loan options carefully, but with the right mortgage company homeowners can get the best rates and terms as well as the cash that they need.

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