Decision: Home Equity Loan vs Refinancing

If you are a homeowner and you need money, you may be considering a home equity loan vs refinancing. Both options can present opportunities depending on your situation. It is important essential to examine your financial situation closely before you make a decision. Here are some things to consider before you make a choice.

Interest Rate

One of the most important considerations should be your current interest rate.  If you have a 30 year mortgage with a 5% interest rate, you are usually in pretty good shape as far as interest goes. If the current market rate is 8%, then it would not be to your advantage to take out $20,000 in cash and make the interest rate on the loan higher. This will result in a much higher monthly payment and a greater amount paid in interest over the life of the loan. In that case, you would be better off to take out a home equity loan. 


If you are borrowing a large amount of money, the payment is something else that you'll have to consider. Doing a refinance will allow you to amortize the loan over 30 years. This will give you a smaller monthly payment than a 10 year home equity loan would.

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