Home Equity Loan Vs. Refinance


Purchasing a home is in the current times considered to be one of the best investment one can make. The reasons for this are numerous but just to mention one of them, as a homeowner, the equity that you build on your home over the years will one day come in handy. The years spent in making mortgage payments will finally pay off the moment you require some extra cash. Whether you are looking for money to add an extra room to your home, repair the roof, pay off an important medical bill, settle the college tuition fees or consolidate a debt, the home equity will help you accomplish your plans.

When it however coms to tapping into the equity gained over the years, you could choose to go with a home equity loan or refinancing. They are both useful but work best in different situations. Choosing one over the other should be something you take time to consider going through some of the major differentiating factors that include repayment terms, closing costs and interest rates. To help you make that decision, the following is a comparison – home equity loan vs refinance.

Interest rates


The interest rates for the home equity loan products are normally based on the prime rates. When the prime rate is lower than the normal average on a fixed mortgage, then choosing a home equity loan is best. Likewise, if the first mortgage that you took had a low interest rate, you should choose a home equity loan to ensure it remains so.

When it comes to refinancing however, they are a better decision if you are looking to get a huge loan. The rates of refinancing are usually lower in comparison to the rates of home equity, especially when it comes to amounts such as $75,000 and $100,000.

Terms of repayment


If you are looking to a small loan that you can pay off fast, then a home equity loan is your best option. You are bound to get competitive rates with this option.

Refinancing on the other hand is best when you are looking to get a huge amount of money and a longer payment period. They are usually more like mortgages with the repayment periods going up to 30 years. The increased length of time will enable you to pay off the loan in small instalments just like with the mortgage.

Closing costs


A home equity loan does not have closing costs and as such has the ability to save you a lot of cash.

With refinancing however, you get a brand new mortgage and as such you have to pay all the appraisal fees and the closing costs just like with your very first mortgage. You should take into consideration the amount you are borrowing and the period you plan on being in the house to determine if the costs are worth it.

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