What's Better, A Refinance Loan Or A Home Equity Line Of Credit?As a homeowner, you can take advantage of the equity in your house. If you purchased a home and had to make private mortgage insurance payments, pmi, because you could not come up with the typical 20% down payment, then refinancing the mortgage loan after your house has appreciated can be advantageous. If interest rates are lower than when you initially purchased your home and you plan on living in your home for a number of years, then refinancing at a lower rate allows you to make lower home mortgage payments and possibly not have to make pmi payments. The downside is that your mortgage is being "reset", i.e. - if you take out a thirty year loan, then refinancing sets the clock back to zero and you have thirty years until the refinanced loan is paid off. Keep in mind that you really do need to consider how long you plan on living in your home after you refinance. If you know that within a year, your job will require you to move and sell your house, it is probably not in your best interest to get a refinance loan. It is unlikely in that scenario that you would be able to recuperate your borrowing costs to justify getting a new loan. On the other hand, if you have plans to sell your home in the very near future, then taking out a home equity line of credit, also referred to as HELOC, can be your best course of action. A home equity line of credit is relatively flexible and often only requires that you make interest payments. You can use a home equity line of credit to fix up your house, or make major additions. Talk to your banker, but often you can use a home equity line of credit as a way to make a down payment on another home. You might consider than option if you plan to buy a different home before you sell your current home. Like most mortgage products, there can be some disadvantages. Only interest payments can be a problem for some borrowers. While it gives you the ability to use some cash for things like home improvements that might increase the value of your home, you could use the money available to ruin your good credit. No matter whether you choose to refinance an existing loan or get a home equity line of credit, the equity in your home can be leveraged to improve your financial situation. Lowering your monthly mortgage payments, eliminating the need to make private mortgage insurance payments, having cash available to make home improvements - those are all advantages you can have by making a wise choice between a refinance loan for a home equity line of credit. |
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