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Refinance or Home Equity Loan?

Refinance and save some money!

Interest rates on home loans have been a topic of media coverage and dinner conversations for some time now. Here's a primer on what exactly these discussions include.

What is a refinance loan?

A refinance is a mortgage loan that will pay off and replace any existing liens you have on your home.

How would a refinance benefit me?

People refinance their homes for several reasons. Here are some of the most common:

  • Interest rate savings: a home owner may save 1% or more with a refinance loan.
  • Shorten loan term: save money on interest by refinancing your 30-year mortgage into a shorter loan (like 20- or 15-year loans).
  • Use your home's value: if you have equity in your home, use it to pay down debt or finance a kitchen remodel.

What to consider when looking at a refinance

Sometimes refinancing your mortgage isn't a cost-effective option. So here are a few things to consider:

  • How much longer do I have on my current mortgage loan?
  • What are closing costs with a new loan?
  • What are the current interest rates?

We have experienced professional that can advise you on the best options.

How Home Equity Loans can Help

If refinancing isn't an option, a home equity loan can be the perfect solution if you need money for school, home repairs, or really anything else.

Unlike with a refinance loan, a home equity Loan allows you to access the equity in your home for paying off debt, home improvement, or future use without paying off your current home loan. This solution is perfect if you:

  • Own your home without a mortgage
  • Have little time remaining to pay off your current mortgage
  • Have a very low interest rate on your current mortgage
  • Want the flexibility to “pay as you go”

Home equity loans and home equity lines of credit (HELOC) have become very popular over the last 10 years. With many homeowners having already taken advantage of low mortgage rates, most people do not want to refinance their primary mortgage to access equity. With a home equity loan or HELOC, you can take out a smaller amount of your home's equity, choose from flexible terms, and in most cases not pay any out of pocket fees.

What's the difference between a home equity loan and a HELOC?

A home equity loan is an installment loan. This means that the amount of the loan, the interest and the monthly payments are all set up front for a certain term. This is a very reliable loan structure and works well for home owners who want to have a consistent payment each month.

A home equity line of credit (HELOC) is a line of credit that is secured to your home. It works the same way as a credit card, but because it is secured to your home, the interest rate and terms are more favorable.

What to consider with HELOCs

  • Some come with an annual fee, which can vary by lender.
  • How long is the draw period? This is the period of time that you're able to draw money from your HELOC.
  • What is the maturity time? When the draw period ends, you are not longer able to pull money from your home. Any outstanding balance at the time of maturity will be used to calculate your monthly payment.
  • What is the offered rate based on? HELOCs are variable rate loans, which means the rate doesn't stay the same, so ask what the maximum rate is. Know how long any introductory rates will last.

Your home's equity can help you pay down debt, pay for college, or improve your home's value. If you have questions, we're happy to guide you to ensure what's right for your long-term financial health.