To many people, there seems to be very little difference between a home equity loan and a refinance loan. However, there are some differences. You will find that a home equity loan, whether it looks like a more traditional loan or a line of credit, offers a little more flexibility. However, the refinance loan usually offers a lower interest rate. Both types of loans, however, have interest that is tax deductible. Make sure you understand the features of both before making a decision between home equity loans vs. refinance loans.
Home Equity Loans
Included in home equity loans are home equity lines of credit. You can decide how much of your equity you want to use as collateral for the loan. Equity is how much you “own” of your home. It is the difference between how much you have left to pay on your home loan and how much your home is worth on the current market. You can borrow part of your equity, or you can borrow all of it. Additionally, you can choose how you want to receive the money: as a lump sum or as a line of credit. This can allow you some flexibility. If you choose the line of credit, you don’t have to borrow up to the limit, but more is available if you need it.
Refinance Loans
While some of the accumulated equity in your home is used in a refinance loan, the loan is really meant to establish new terms for your loan. The entire mortgage is redone, and some of the accumulated equity you have can be added in for a “cash out,” where you take cash and your home is refinanced for an amount that is higher over all. You have no decision as to how to take your loan. It is lump sum. It is applied to “pay off” your “old” mortgage, and the remainder, the “cash out” portion, is given to you. Usually, it is possible to spread the terms out over a longer period of time than a home equity loan, and you usually end up with a lower interest rate.
Home Equity Loans vs. Refinance Loans: Which is Best For You?
You have to decide which would work best for you. If your purpose is to mainly to fix an interest rate or change the loan term to something longer or shorter, and maybe get a little extra cash to pay some bills or take a vacation, the home refinance loan may work best for you. However, if you are looking for flexibility, and you are not sure exactly how much you need, a home equity loan, in the form of a line of credit, might be your best option. Do your research, though, and shop around for a loan that suits your specific needs.
By: L. Sampson
Posts Tagged ‘Home Equity Loans’
Home Equity Loans vs. Refinance Loans
January 30th, 2010Georgia Refinance Loans With Bad Credit in Atlanta, Savannah, Augusta, Athens, Columbus, Macon, etc
December 23rd, 2009
Homes in Atlanta, Savannah, Athens and surrounding areas have appreciated to allow homeowners to take cash out of their homes, via home equity loans or home equity line of credit loans, to finance home improvement projects, credit card debt consolidation, education, etc.
If you live in Georgia and you need a mortgage refinance loan but you are worried about bad credit – know that it is possible to get a HELOC or Home Equity Loan, even with a low credit score be it 450, 500 or 550.
What is your FICO credit score?
Your FICO (Fair Isaac Corporation) score is number between 300 and 850, that indicates your financial health. A good FICO score is a score above 670, while a poor FICO score is a score below 620. Different lenders vary of what they consider a “fair” credit score versus a “poor credit score” – this
can be a gray line.
Having a good credit score allows you to get credit on competitive terms – good interest rates, exciting new loan products, credit cards, etc.
If you have a low credit score below 600, you will need to find a subprime refinance lender, who works with people with bad credit, whether it is due to poor debt management or a history of Chapter 7 or Chapter 13 bankruptcy.
Not all subprime lenders are created equal. The best lender is a lender, who is willing to look at your specific situation and find you the best loan product. Even though, you may have a low credit score, you may also have good equity in your home. Some lenders even offer up to 125% LTV (Loan-to-value) loans, if you qualify.
By: Alexandra French
Cash Out Refinancing Loans Vs Home Equity Loans
November 18th, 2009
One of the products that some homeowners find confusing is the Cash Out Refinancing Loan. Many people use Cash Out and Home Equity Loan interchangeably; however they are different loan products with some similarities. Here is some information on both of these types of loans.
Cash Out Refinancing
A cash out refinancing loan is part of the umbrella of refinancing loan products. A refinancing loan is a new loan to pay off an older loan, using the same property as collateral. With a cash out refinancing loan, you can “cash out” the equity of your home that has appreciated over the years. For instance, if your home is appraised at $200K and you only owe $100K on the original mortgage, you have $100K of equity built up. A cash out refinancing loan allows you to refinance the loan and also let you access some of the equity built up. In the above case, you can refinance your home for a total of $150K, cashing out $50K of equity.
Home Equity Loan
A home equity loan is different from a refinancing loan; it is a second mortgage that is secured using your home as collateral. The original mortgage is still in place. With a home equity loan, you do not refinance your home, but just cash out the equity. If you are happy with the interest rates or current terms of your mortgage and would just like to have access to your equity, a home equity loan is the right choice.
Pros & Cons
For homeowners that need quick access to their equity, a home equity loan is the much quicker way to access it. While a cash out a refinancing loan can take several weeks or more than a month to close, some home equity loans can close in as little as one week.
Another advantage of the home equity loan is that there are usually lower fees involved. You are usually not required to pay points, but only normal closing and administration fees.
If you are interested in repaying your loan over the long haul to reduce your monthly payment cash out refinancing loans is your best option. Most loans in this category have 15 year or 30 year terms and a low rate.
If you are looking for the lowest rate for a loan, the cash out refinancing loan is typically more competitive than a home equity loan. However, most refinancing loans include points that can make these rates less attractive.
By: Connie Barker