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– Amy C.
Member Since 2010

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Refinance vs Home Equity Loan
Refinance vs Home Equity Loan

Say you need $50,000 for home repairs. If your home is worth $400,000 and you owe $275,000 on the mortgage, you have approximately $125,000 in equity. You can access this equity in either of two ways: You can refinance your mortgage so that you owe $325,000 and the lender gives you $50,000 in cash when the loan closes. Or, you can take out a home equity loan, which allows you to keep your current mortgage and take out a second mortgage for the additional $50,000.

 

Your best option will depend on your needs. There are four main areas to consider:

  • How fast do you need the money?
  • Which will cost you more in interest?
  • How long do you want to take to pay back the loan?
  • What are the fees involved?

You may want to refinance if:

  • Your current first mortgage has a substantially higher interest rate than the current rates. This may help you lower your monthly payment.
  • You are looking to consolidate a first mortgage and home equity loan into a new first mortgage. Depending on the current interest rate, this should help you lower your monthly payments.
  • You can wait a longer period before receiving the funds.
  • You have an adjustable rate mortgage and expect that your interest rate may increase in the future. Depending on the current rates, your monthly payments may decrease by refinancing into a new adjustable- or fixed-rate mortgage.
  • You want more than $25,000. If you need less, you may want to consider a home equity loan or line of credit.
  • You want a 15- or 30-year term.

You may want a home equity loan if you:

  • Need the money quickly. Most SchoolsFirst FCU home equity loans can be approved and funded faster than refinancing your mortgage.
  • Need less than $25,000. If you need more it may be better for you to refinance your current mortgage.
  • Want to pay back the loan faster than 15 or 30 years so that you pay less in interest.
  • Are willing to pay a higher interest rate than a refinance. However, you may still want a home equity loan at a higher rate if you already have a great rate on your original mortgage that you may lose if you refinance.
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