Is there a difference between a home equity loan and refinancing?

Answer 1

The above information is good, but let me clarify a few things that have been mentioned:

1. Home Equity Loan = A second mortgage. The allowed loan amount is determined by your available equity (home value minus amount of mortgages)

2. HELOC ( Home equity line of credit) = This is a specific type of home equity loan. Unlike the standard home equity mortgage, the loan is not given in a lump amount, but rather you are allowed to draw on funds up to a defined amount. It is sort of like having a credit card or checking account that is linked to your home's equity.

My site (it is NOT a sales or application site) has an article on the HELOC and home equity loan http://www.mortgagemystery.com/heloc-mortgage.html

3. Refinance = As said by others, it involves getting a new mortgage in place of your first mortgage. At the same time, you can take cash out - this is called a cash-out refinance and is very common.

It has been said that a second mortgage is better because the fees are higher for a refinance. The fees ARE usually higher for a full refinance, but that does not necessarily mean it is a worse choice. Second mortgages have high rates, often at least 8.5%. Depending on the rate on your first mortgage and the amount of cash-out you want, it can be a MUCH better idea to refinance the first mortgage.

Hope that helps.

Answer 2

There's three numbers you need to know about home prices and equity.

The first is the home valuation. The second is the current balance of all mortgages on the house. The third is the owner's equity (how much of the house does the owner actually own).

A home equity loan is a loan using the owner's equity as collateral. When approving home equity loans, some banks will use a higher valuation amount, but the interest rate may be a little higher.

Refinancing is where the original mortgage is paid off using a new mortgage. Sometimes, the new mortgage is for a higher amount, giving the owner cash in exchange for some of their equity.

A mortgage is repaid over a longer period of time (15-30+ years). A home equity loan is usually repaid over 5 years or so.

Answer 3

Refinancing is simply taking the existing money you have borrowed and moving it to a different company with a lower rate. This will "give" you more money in that the interest you are paying is less, and thus your monthly payments are less. Sometimes there are closing fees associated with refinancing, but in the long run it should save you quite a bit of money. A home equity loan is new money ON TOP of what you already borrowed based upon what your home is worth above what you paid for it. So if you borrowed 150,000 to pay for your home and took out a 20,000 home equity loan, now you owe 170,000. More considering the rate on your loan is going to be higher than your initial mortgage loan.

Answer 4

When you are refinancing, you are paying off your home loan and replacing it with another. When you take a home equity loan out, you keep your original loan, and you get a second loan that is equal to, or less than the equity you have in the home (the difference between the value of the home and the outstanding loan balance you have with your first mortgage).

The home equity loan is second to the original mortgage, so if something should happen (i.e. foreclosure or the house burns down and the insurance company pays for the loss), the original lender gets their money first, and whatever is left is used to pay off the home equity loan.

Answer 5

Yes.

A home equity loan is a second loan on top of your current mortgage. You pay the home equity loan and your mortgage.

A refinance takes out a new mortgage to replace the old one. You may get cash out, but if you do, the amount you owe on your morgage goes up.

Generally, unless you have a compelling reason to refinance (getting ripped on your interest rate or desperately need to lower payments by extending term), you should go with the home equity loan. Fees on refis are high, and unless you are careful, you can get ripped off easily.

Answer 6

a heloc is a second mortgage

while refinancing can be refinancing of a first mortgage either for rate & term or for cash out, which may create a 2nd mortgage if the refi is cash out...

Answer 7

http://homerefinance1.blogspot.com has good information and links on refinancing a mortgage loan.

http://homerefinance1.blogspot.com