Understanding the Difference Between Refinancing and Home Equity Loans

What You Need to Know About Cash Out Refinance Loans
When interest rates are low, the idea of refinancing your home loan seems very appealing. Seeking a home loan refinance becomes even more attractive when affordable interest rates are paired with an opportunity to get equity out of one's home to use for home improvements or other purposes.

In many cases, a cash out refinance is the best option for homeowners seeking to utilize the equity they have built up in their homes. However, there are a number of factors to consider when one is contemplating a home loan refinance.

First, it's important to keep in mind that refinancing involves getting an entirely new mortgage loan. When you complete a cash out refinance, part of the proceeds will be used to pay off the balance of your existing mortgage loan. The remainder will be money that you can utilize for any purpose you choose.

Any time you get a mortgage loan, you have to complete a fairly extensive paperwork process. You also have to pay a variety of different types of fees, typically referred to as closing costs. When you first purchased your home, it's likely that the seller took responsibility for some of the closing costs. However, when you are refinancing your home, you will be responsible for all the closing costs on your own. Here's a list of all the fees involved with refinancing.

What You Need to Know About Home Equity Loan Options
When you take out a home equity loan, you are not replacing your primary mortgage. You are taking out a second mortgage, either in the form of a loan or a line of credit, that utilizes existing equity in your home as collateral.

It can be easier to apply and qualify for a home equity loan or line of credit for many people. Additionally, the application process is usually shorter for these types of loans than for traditional mortgages. There are usually some closing costs associated with these financing options, but they tend to be lower than those associated with cash out refinance loans.

Making Your Decision
Regardless of the type of home loan option you pursue when you want to get equity out of your home, it's important to seek assistance from a reputable lender who understands the importance and value of customer service. Discuss the advantages and disadvantages of cash out refinances and home equity financing options with the mortgage professionals you are considering before making a final decision. Everyone's situation is different, and the advice of a trusted mortgage professional can be invaluable when trying to decide if a cash out refinance or a home equity line of credit or loan is best for you.