Refinancing Your Mortgage Or A Home Equity Loan - Which Is Better?

by Joseph Kenny
When it comes time to get the money you need to renovate your home, you have some choices to make concerning the financing of it. Both ways, either refinancing your first mortgage, or a home equity loan, will give you access to your equity. After that, though, a number of differences will clearly stand out. Here is what you need to know about these differences so you can intelligently choose the best one for your needs.

Features Of Refinancing Your First Mortgage

By getting a cash out mortgage, you can replace your first mortgage and obtain your equity. This means that you will have to pay the fees again that you paid when you bought the house in the first place. However, if you wait until the interest rates are down, you can get a better deal than you had before. The amount that you can gain could easily offset the costs of refinancing and save you thousands of dollars over the life of the new mortgage.

The interest rate for a first mortgage is always lower than what you would get for a second mortgage - which makes this the ideal choice. You also will have only one payment each month, which you could even make lower than what you have now by extending the time length on the mortgage. If you already have more than one mortgage, then this is also a good way to consolidate them and get your equity at the same time, as well as reduce your monthly payment.

If you currently have an adjustable rate mortgage that is about to run out of the fixed rate portion, then this should be the way you would want to go. Not only will it give you level payments with a fixed interest rate, assuming you get a fixed rate mortgage, but also your equity for the upcoming renovation project you have in mind. This means you could take care of more than one problem at once.

Features Of A Home Equity Loan

A home equity loan is considered a second mortgage. This means it will give you an additional payment each month. If you can afford the extra payment, this may be the way you want to go. It will also have a higher rate of interest than a first mortgage, and usually has a time frame of up to 15 years for repayment.

You can take out your equity but need to leave enough in there that is equal to 20% of the value of the house. This is true with any kind of mortgage, since you may need to pay private mortgage insurance if you go over this amount.

A home equity loan is mostly fixed rate, but some may also be adjustable. Your loan payments are fully amortizing, and money used for fixing up your home is often tax deductible. This type of loan is seeing some new variations come out recently, so you will want to see what is out there before you choose.

The Choice Is Yours

Obviously, only one of these choices will best meet your needs. After you choose a course to take, you will then want to get a few quotes - whether you choose to refinance, or get a home equity loan. You will need to look them over carefully and consider all aspects in order to find the one that is best for you.
http://www.rebuild.org/refinance.html

Home Equity Loans - 3 Tips to Smarter Borrowing

Terry Edwards
There is no question that home equity loans have become the biggest tool for homeowners to get their hands on the cash they need. And used correctly, these loans are also a smart way to borrow needed funds for things like medical expenses, debt repayment and home improvements. With that said, here are 3 tips to help you in finding a great deal on a home equity loan.

1. Shop For Rates And Avoid Fees

Many home owners don't realize that lending rates on loans are different. They mistakenly believe that all lenders will loan money at about the same interest rate. Nothing could be further from the truth.

Home equity loan rates could vary by up to 5% in some cases, and on a $100,000 loan that is serious money. Get at least 3 different loan comparisons before making a decision. Yes, that may take extra time, but it could be worth thousands of dollars. Thousands of dollars of your money.

Also, be aware of loan fees. Lenders should not be charging you for an application fee or an appraisal fee. Nor should they add fees into the loan amount. Where a lender may add on a fee is with a home equity line of credit. They may charge an annual fee.

2. Understand Tax Rules

Many borrowers mistakenly believe that interest on any home equity loan will be tax deductible each year. This just is not true.

Interest on loans up to $100,000 may be tax deductible, but any amount over that will not be deductible.

Also, in order to deduct the interest you will have to be able to itemize your tax return. Will you have the deductions to be able to do this?

3. Understand Your Home Is On The Line

Not only are you putting your home on the line in the event you are unable to repay your loan, but you are also sucking out your home's equity. Be sure that you are not planning on moving in the next few years or you could be in financial trouble.

Be careful in using the money for home improvements. Ask yourself if you will be able to get the value back out of your home when you go to sell it. In some cases the answer may be no.

By following these tips you can make a smarter decision in taking out any type of home equity loan.

http://www.articlesbase.com/loans-articles/home-equity-loans-3-tips-to-smarter-borrowing-211112.html