What is the Difference Between a Home Equity Loan and Refinancing?
A home can be a great place to live as well as a valuable asset. Being one of the larger investments one can make, if you are in need of cash, your home can be used to secure funds for a range of financial situations. This is usually done by homeowners looking to take out a home equity loan or refinancing their current mortgage.
What is a Home Equity Loan?
A Home Equity Loan (or HELOAN) can also be seen as a second mortgage. These are great when you are looking to update your home through renovations or pay off outstanding high-interest debts from credits cards or car loans.
In order to be eligible for a home equity loan, you need to have paid down some of your mortgage. The difference between the appraised value and the amount left on the mortgage make up your home equity. Even if you just started paying down your mortgage, you could have a few thousand dollars of equity available.
Why a Home Equity Loan?
Home Equity Loans have very low interest rates compared to other unsecured loans. In most cases, it would cheaper to get one for your next car rather than financing through the actual dealership. If you are stuck paying high-interest credit cards, using a HELOAN to consolidate will not only get the debt paid quicker, you could save thousands in interest.
What Does It Mean to Refinance Your Home?
By Refinancing your mortgage, you are essentially negotiating a new loan – usually with better rates and terms – to pay off your existing mortgage.
Why Refinance Your Home?
There are several reasons why someone would want to refinance their home.
• To make the payments easier. If you are able to get a better interest rate, your monthly payments drop.
• To change the terms of the loan. For example, a mortgage term can last up to 30 years. If you wanted to pay it off sooner, you could refinance to a 15-year term at better rates.
How Should You Choose?
The best way to sort out your options is to speak to a licensed mortgage professional from Canadalend. He or she can talk to you about your options and what your payments are going to look like so that you can make an informed decision that works best for your situation.