Are you trying to understand the difference between refinancing and a home equity loan? If you are looking for cash for emergencies, house repairs, or for whatever reason you need some money; you can consider a cash-out refinance or home equity loan.
Cash-out refinance, and home equity loans can solve the problems you are facing now, but there are differences between both loan programs.
What is cash-out refinancing?
Cash-out refinancing is the program you use if you want to pay your old mortgage off and exchange it with a new mortgage. You do this because the latest mortgage offers you a lower interest rate and a better loan package.
What is a home equity loan?
A home equity loan is the kind of loan that lets you get cash based on how much equity you have built property. This is another loan that you are going to repay with different terms.
If you need a significant amount of money for a need like improving your home or major renovations, then a cash-out refinancing may be good for you as it will help you save money by lowering interest rates. But a home equity loan may be better if you need a cash reserve for something you are preparing for soon.
The bottom line is that you apply for a cash-out refinancing if it can lower the interest of your APR or annual percentage rate. Will your refinance application gives you a shorter loan term and lower your monthly payment? If you answer yes, cash-out refinancing may be a good option.
When do you apply for home equity loans? When it offers to lower your fixed interest compared to your earlier mortgage. It is best to use the money you can get from your equity loan when you renovate your home and raise its value. But be wary, though, because if you use your home as security for your loan, you stand to lose it if you fall behind your repayments as you are using this as collateral. If you don’t have a good credit rating or are too deep in debt, home equity loans might not be for you.
Let us know how we can further help you in your quest to see the difference between refinancing and a home equity loan.
