QandAs: Loans

Is a home equity loan considered refinancing?

Answer:
Tapping into your home’s equity is a great way

to get your hands on extra cash. In this instance, homeowners either select a home equity loan or choose to refinance their home loan. Both options serve a similar purpose. However, there is a difference between a home equity loan and mortgage refinancing.

A home equity loan involves a second lien on the property. This can be in the form of a second mortgage or a home equity line of credit. On the other hand, a mortgage refinance creates a new home loan and maintains a first mortgage position.

There are benefits to both options. A home equity loan is perfect for homeowners who need quick cash for a home improvement project, debt consolidation, wedding expense, or college tuition. There are no closing costs with home equity loans and lines of credits.

Additionally, these loans have low interest rates. With a mortgage refinance, borrowers can pick a cash-out option and use the money for similar purposes. Moreover, a mortgage refinance is great for anyone who wants to obtain a lower interest rate on their home loan. Unfortunately, since a mortgage refinance creates a new home loan, borrowers will have to pay settlement fees.


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