Home Equity Loan or Home Loan Mortgage Refinancing?
If you are considering taking out a secured loan against your home, two of your options are home
loan mortgage refinancing with cash-out or home equity loans. Depending on your particular
situation one may be better for you financially that the other.
Cash-Out Refinancing
A cash-out refinance is refinancing your mortgage for more than the current balance on your first
mortgage. Home loan mortgage refinancing usually has a lower interest rate than home equity
loans, but if you borrow more than 80% of your home’s value then you may have to pay private
mortgage insurance. If you have had your mortgage long enough that you are paying more
principal than interest each month or if you currently have a good interest rate, it does not make
much sense to refinance and a home equity loan will probably be a better option.
Home Equity Loan
A home equity loan is a loan on the difference between the market value of your home and the
balance that you still owe on your mortgage. As a separate loan in addition to your mortgage,
you do not usually pay the closing cost associated with a mortgage and the interest is usually tax
deductable. Home equity loans are a good choice if your penalties for pre-payment on your
original mortgage make refinancing impossible.
Which is Best?
Investments in the value of your home, starting a small business, or life-saving medical treatment
are all good reasons to consider a cash-out refinance. However, you may end up paying more for
your total interest than if you refinance your current mortgage at a lower interest rate and take
out a home equity loan for a shorter term. Your final decision will depend on what you can
afford for your monthly payments and if you are comfortable paying a larger total interest in
exchange for lower monthly payments and lower interest rates.

If you are interested in debt consolidation, you may be able to get a lower interest rate with a
cash-out refinance, but you lengthen the amount of time over which to pay off your loan. You
might want to look into a home equity loan with a short term or simply re-budget and tackle your
highest interest debt first and try to pay off your credit cards. This last method will probably
same you more money in interest paid over time.
Remember that whether you opt for a cash-out refinance or a home equity loan, in either case
failure to repay your loan can cost you your home. For more articles on Mortgage Refinance,
visit Bills.com