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In order to determine whether or not you should refinance your home or take out a home equity loan, you first have to decide why you’re applying for a loan in the first place.
If you are looking at your current mortgage and finding that you may be able to get lower interest rates and lower your monthly payments, then refinancing may be your best option.
Home equity loans, however, can be used for a variety of reasons – including consolidation of your other debt like credit cards, which tend to have much higher interest rates.
When you refinance, you’re taking out a loan that will probably be extended for 30 years. So you wouldn’t want to put you credit card debt into a refinanced mortgage because you’re stretching that debt out instead of saving money.
Sometimes, you’ll want to use a home equity loan to refinance your mortgage. If your current mortgage is 10.5% on a fixed-rate mortgage note, you could get a better deal using a home equity loan with a lower interest rate and maybe even have cash left over for other uses!
With a home equity loan, you’re putting the value of your home to work for you. Most people don’t realize that these types of loans can be used for refinancing their mortgage – not just on vacations, remodeling, or college tuition.
Home equity loans don’t have closing costs, can lower your interest rate and monthly payments, and don’t require private mortgage insurance unless you borrow more than 80% of your home’s value. Plus, you can deduct the interest paid on your loan in some cases!
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