Over $600 billion worth of home loans were refinanced in the U.S. in 2020, according to the latest reports. Furthermore, interest rates have begun to rise, but as many as 189 financial institutions are offering home loans with rates below 2%. Recent global circumstances have made people think about how to save more as incomes have been slashed. If a house is your only investment, there are ways you may use it to economize. Some people opt for credit consolidation loans via home equity loan while some choose to refinance an existing mortgage. Here are some points to consider if refinancing on an existing mortgage or a home equity loan is better for you.
Rewards From Refinancing
Refinancing is simply paying off an old mortgage with a new one. Interest rates are relatively low now and refinancing enables you to have reduced repayments each month. If you decide to maintain the same monthly payments as the previous loan, the new lower interest rate means you can pay off your loan earlier. You’re not only free from mortgage sooner. You’ll also save a lot on interest. If your old loan is on a flexible rate, opting to refinance with a fixed rate will remove the anxiety on the possibility of rates increasing. If you choose cash-out refinancing, you’ll have cash that you can use as an investment.
Gains From A Home Loan Equity
A home loan equity is an amount you can borrow from a lender with your house as collateral. If you have an existing mortgage, this is what is often called a second mortgage. You can use the cash to renovate your house or pay credit card debts. A home loan equity typically has fixed rates that may be lower than credit card rates. If you choose to get a Home Equity Line of Credit (HELOC) instead of a lump sum, this will give you the ability to borrow only what you need and pay it off. You only need to pay for the amount you utilize rather than the total loan amount.
Which One To Choose
Refinancing is best if what you need is lower monthly payments or a shorter time to pay off the loan. Refinancing cash-out will serve you well if you need a substantial amount of cash. A home equity loan is a better option if you can’t find a lower rate when refinancing. Ultimately, it boils down to current offers from lenders, your creditworthiness, how much you need to borrow, what you’ll do with the money, and how much equity you’ve built in your house.