March 20, 2009
Refinance vs Home Equity Loan
Are you considering refinancing your home, or maybe getting a home equity loan? Many people have come to this point in their home ownership, but the choice of refinance vs home equity loan is a difficult decision to make.
Let’s first look at the benefits of each one. To refinance your home you will be paying off the first mortgage on your own and replacing it with another mortgage. The payments you have now will be different from the payments you will have on the new mortgage, but once you get the new mortgage payment, it will stay within the range you have in your contract. Of course if you get an adjustable rate mortgage things can change, based on the economy and market rates.
However you will be getting a new mortgage at the face value of your house now. You will use this new loan to pay off the old loan and what is left over is what you can use for whatever you need it for. Keep in mind though you will be paying all of this money back.
Here is an example. You bought your home 10 years ago for $85,000. You have now paid of $30,000 of that money, and only owe $55,000. The market value of your home has increased during this time and your home is now worth $125,000. You will take the loan for $125,000 and pay off the other $55,000 you still owed on your home. You now have a new loan for $125,000 and you have $70,000 of that in your pocket.
What is a home equity loan though? It works a bit different. With the same example, let’s do a home equity loan. You bought at $85,000 you have $55,000 left on the loan. Your equity in your home is $30,000. A home equity loan only gives you what is left of the original loan amount.
On top of your mortgage you will now have another loan to pay on, but it is just the $30,000. And if you get a home equity VIP loan, the payment each month can fluctuate based on what you are using of the loan.
It might seem like the home equity loan gives you less money to use right now, but you have to remember you are still only paying the $85,000 back instead of the $125,000 for the refinance. Your mortgage payments are going to be completely different between these two options and you will have a much bigger amount to pay each month for the refinance.
How you proceed between these two is completely up to you, just take into consideration how much money you need right now and how much money you can afford to pay monthly for your home.
© 2009 HomeLoanInfoZone.com
Mail this post
