What is better – a refinance or a home equity loan/line of credit?

What is better – a refinance or a home equity loan/line of credit?

If you are looking or wondering What is better – a refinance or a home equity loan/line of credit? Actually, it all depends on your needs! Briefly, a home equity loan (or “HELOC”) is a loan or credit line that is secured by the equity you have in your home. It is not a mortgage as such.

A HELOC’s interest rate is generally set on the shortest-term market rate available, the Wall Street Journal prime rate. That means those interest rates can fluctuate up and down unlike fixed-rate mortgage.

When interest rates are the rise, getting a home equity loan/line of credit may seem like a bad idea. However, they usually do not have closing costs associated with them. Therefore, they can be anywhere from $2,000 to $3,000 cheaper than a mortgage refinance!

So, how do you know which method to choose?

Generally speaking, mortgage refinances offer you a better deal over all. However, if you are a person who does not need to a great deal of money and who can pay off that loan in a short amount of time, then an HELOC is a good choice for you. Why? Because lenders offer their lowest rates on shorter-term equity loans! You will pay less.

Here is another situation in which you might want to consider using a HELOC: If you are a person who took out first a first mortgage during periods of very low rates, then it does not make much sense to refinance into a new first mortgage with a higher interest rate, a higher balance, and closing costs as well!

As always, consider all factors when deciding between a home equity loan/line of credit and a mortgage refinance!

Call us if you have any questions or concerns 909-920-3500. Or check us out online.