Mortgages

A brief note about the difference between mortgage refinance, home equity loans and home equity lines of credit. All three offer interest rates that are generally lower than other forms of credit.

A mortgage refinance is a new loan that is used to partially, fully or more than pay off a preexisting loan. In instances where a refinance amount is more than the original loan amount, the borrower ‘pulls’ money out of the house and chooses to take a higher monthly payment and have cash available for spending. A mortgage refinance is ideal when a borrower can opt for a more stable (fixed over adjustable) or lower or still relatively low interest rate. In general, borrowers must wait 2 years for a full refinance.

A home equity loan is generally a second or third mortgage on a home. As a borrower has more loans or more debt in the home (less equity), the interest rates will tend to be higher. As opposed to a home equity line of credit, a borrower must decide how much the home equity loan amount will be and take that money immediately (rather than a line of credit) and in full.

A home equity line of credit is an amount that is available for a period of time (i.e. 5 years) and the borrower will pay the interest/payments of the outstanding balance of the credit line only. Many lenders provide ‘no fee’ home equity lines of credit as the market can be quite competitive for this type of product.

With home equity and refinance mortgage rates around 6.5%, home loan interest rates are now significantly lower than most other forms of credit. With so many homeowners gaining considerable amounts of equity in their homes over the past few years, home equity loans are a great way to help reduce overall debt and monthly loan payments. Applying for a home equity loan now, while interest rates are still reasonably low, can help to save thousands of dollars compared to other forms of credit such as credit cards, with rates around 13 and 14 percent.

link:
home loans