If you are thinking about taking out an equity loan then you have several decisions to make. For instance, with an equity loan, typically a bank will set its rate based on the shortest-term market rate. In addition, an equity loan includes closing costs although generally less expensive than closing costs you would pay with the first mortgage loan.
With a home equity loan, you need to know why you want or need this type of loan. For instance, it might be to help pay off credit card debt, it could be to secure a lower interest rate on the mortgage, or it might be used for lowering the monthly house payment. Once you determine the reasons for the home equity loan, you can then determine the best loan to choose.
If you were trying to pay off high interest credit card bills, you would not want to refinance your existing mortgage since this means stretching out the credit card bill for 30 years since this amount would not be rolled into the house payment. In this case, it would be better to take out a home equity loan, which allows you to pay the loan off sooner while also being tax deductible.
On the other hand, if you have quite a bit of equity in your home but are currently paying a high interest rate on a 30-year fixed rate mortgage, you might consider refinancing for a lower interest rate. In this case, you would usually get some cash back so you have money to do some remodeling or bill paying if you want. Refinancing can actually save you money on the monthly payment. However, if you refinance, you want to make sure the deal means a lower interest rate or lower monthly payments to benefit.
Now, with a home equity loan, the value of money you have in your home is used. For example, if you currently owe $70,000 on a $100,000 home, then you have $30,000 in equity. When you take out an equity loan, you would be taking out a loan up to $30,000, which again could be used to pay off bills, do home remodeling, or whatever you like.
For a refinance loan, you take the existing amount of money due on the home and literally create a new loan. With this, you would finance that money with a lower interest rate. Again, depending on the structure of the loan, you may or may not end up with a little money left over but usually not. If you have a high interest rate, refinancing is a great way to lower the amount paid, which reduces how much you spend each month.
Today, more than 33 million people in the United States are in debt. Of those people, a large number of homeowners who are starting to see the huge benefits found in both the home equity loan and refinancing the existing loan. If you are tired of being in debt and want to get back on top, then you might consider one of these two options.