If you’re considering taking out
a home equity loan or refinancing an existing loan,
you may be wondering which course of action is best.
There are some important things to keep in mind as you
make this decision.
Start by analyzing your current loan. Were rates high
when you financed? Did you have credit issues that have
since been resolved? Do you have an adjustable rate
mortgage? If any of these situations apply, refinancing
could be a good option. As a general rule of thumb,
most financial counselors say interest rates should
be at least one to two points lower in order for refinancing
to be a good option. The closing costs typically associated
with refinancing will eat up the profits of a lesser
decrease in the interest rate you’re paying.
If your credit is now better than it was when you took
out your original mortgage, you may qualify for better
interest rates and terms now. And if you have an adjustable
rate mortgage and are looking for the stability of a
fixed rate loan, it could be a good time to refinance.
Remember that there may be some differences in the
closing costs for those loans. Ask about the closing
costs for each. For example, some home equity loans
don’t require mortgage insurance. If you haven’t
had an appraisal in the past few years, a lender may
require that you do so before you can refinance your
existing mortgage. That may not be the case if you take
out a home equity loan instead.
If you have significant home equity accrued and need
cash, a home equity loan can sometimes be easier to
obtain and can take less time at closing. You’ve
probably proven your ability and willingness to make
payments by paying on your existing mortgage, meaning
that lenders are ready to trust you with an addition
loan.
Time for payoff and amount of monthly payments should
also be considered when you’re deciding whether
to take out a home equity loan or to refinance. If you
take out a home equity loan, you’ll be making
two monthly payments. That could be a strain on your
budget, but it’s relatively short term. Refinancing
will likely mean that you have stretched the length
of your mortgage so that it’ll be longer before
you have the loan paid off.
As you can see, there are some major differences between
refinancing and taking out a home equity loan. Only
you can decide which is the best choice for your situation.
As soon as you make that decision, take a look at our
online loan application. It’s fast, secure and
is the next positive step toward making your loan a
reality.
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