Mortgage Refinance Or Home Equity Loan Whats The Difference

Mortgage Refinance Or Home Equity Loan Whats The Difference



Mortgage Refinance or​ Home Equity Loan – What’s the​ Difference?
Many people use the​ terms mortgage refinance and home equity loan interchangeably,​ but the​ two are not the​ same thing .​
Before you​ consider one or​ the​ other,​ be sure you​ know what your lender is​ referring to.
The reason the​ two terms are often confused has to​ do with the​ fact that you’ll typically be refinancing your existing mortgage when you​ have some equity established in​ your home .​
Equity is​ simply the​ difference between the​ market value of​ your home and the​ amount you​ owe against it .​
To put it​ into dollars,​ a​ person who owns a​ home that has a​ market value of​ $100,​000 and a​ mortgage on​ that home of​ $60,​000 has $40,​000 in​ equity .​
That’s not to​ say that all lenders are willing to​ loan you​ an​ additional $40,​000 .​
In fact,​ many lenders have caps on​ the​ amount they’ll loan .​
It might be that a​ particular lender will only loan up to​ 90 percent of​ the​ market value of​ the​ home .​
In that case,​ the​ loan value of​ the​ home would only be $90,​000 .​
Though the​ amount of​ equity technically remains the​ same,​ the​ amount of​ loan available depends on​ the​ lender’s guidelines.
If you​ have $40,​000 in​ equity in​ your home,​ you​ may want to​ cash in​ on​ at​ least some of​ that money .​
But how do you​ go about getting it? the​ two main options are to​ take out a​ mortgage refinance loan or​ a​ home equity loan .​
a​ mortgage refinance is​ exactly what the​ name implies – your original mortgage will be figured into a​ new loan,​ giving you​ a​ mortgage refinance loan .​
But a​ home equity loan leaves the​ existing loan as​ it​ stands .​
You’ll have a​ second payment on​ top of​ the​ original mortgage.
So which is​ better? It actually depends on​ several factors .​
Did you​ get great terms and rates when you​ financed the​ original loan? If so,​ you​ may want to​ consider a​ home equity loan so that you​ keep those great rates and terms on​ your original mortgage .​
Can you​ afford to​ make the​ double payments required? Remember,​ if​ you​ take out a​ home equity loan you’ll still be making the​ original mortgage payments and your home equity loan will be tacked on​ top of​ that .​
Some people find that the​ budget simply won’t stretch to​ make those necessary payments .​
There’s plenty to​ consider before you​ decide whether it’s time for a​ mortgage refinance or​ you​ should take out a​ home equity loan.




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