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Refinancing vs Line of Credit
Refinancing vs. line of credit are two popular options you have
when deciding the best way to take equity out of your home.
Sometimes it makes sense to establish a line of credit. But in
other situations it's better to get a cash back refinance
mortgage loan.
You can find out which loan is best for your situation by
doing some simple math. The amount of money you need to borrow
and the length of time you need to pay it back really determines
if refinancing vs line of credit loan makes the most sense.
Home equity lines of credit are based on adjustable type
mortgage rates and move up or down when the Fed raises or lowers
the prime rate. If you don't need to borrow much money and plan
to pay off the loan in a short amount of time, an equity line of
credit may work best for you because you pay the least amount of
interest.
An advantage of a home equity credit line is banks offer their
lowest interest rates on adjustable mortgage rate type loans.
Also, equity lines of credit usually come without the typical
closing costs you pay with a cash back refinance mortgage
loan.
Average closing costs on a refinance loan usually amount to
several thousands of dollars. So when you are trying to decide
between refinancing vs line of credit that should factor into
your decision.
Another advantage of a home equity credit line is they are
more flexible than a cash back refinance mortgage loan. With a
home equity credit line you only pay interest on the amount you
borrow. The remainder of the credit line is available at any time
without paying any interest.
Home equity credit lines work well for smaller loan amounts,
but if you need a large amount of money, say $75,000 to $100,000,
you may want to consider a cash back refinance mortgage loan.
A cash back refinance mortgage loan is a first mortgage and
most are amortized over a 30 year payment schedule. That keeps
your payments more affordable on a larger loan amount. Most home
equity lines amortize over 10 years or 15 years because they are
a second mortgage loan.
Another consideration when trying to decide between
refinancing vs line of credit is the interest rate you currently
have on your first mortgage. If you have a low interest rate on
your first mortgage you may want to take advantage of a home
equity credit line so you can keep your low rate on the first
mortgage.
If you have a high interest rate on your first mortgage, a
cash back refinance mortgage loan with a lower interest rate
might make more sense. Just remember to do the math because the
average closing costs on a refinance loan will amount to several
thousands of dollars.
Until you repay the loan closing costs you won't be saving any
money even if your monthly payment is lower. Figure the number of
months it takes in payment savings to cover the typical closing
costs of a cash back refinance mortgage loan to see if this makes
sense for you.
These simple tips should help when deciding if you should
establish a line of credit or get a cash back refinance mortgage
loan. Do the math to find out if refinancing vs line of credit
makes the most sense for your situation.
Copyright © 2005 Credit Repair Facts.com All Rights
Reserved.
This article is supplied by http://www.credit-repair-facts.com
where you will find credit information, debt elimination programs
and informative facts that give you the knowledge to correct your
own credit and credit report. For more credit related articles
like these go to: http://www.credit-repair-facts.com/articles_1.html
 MORE RESOURCES updated Thu. February / 09 / 2012
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New HARP Could Help Up to 6.7 MillionNASDAQOther changes to the program were designed to make it easier for homeowners with private mortgage insurance (PMI) to refinance or to obtain a HARP mortgage refinance with a lender other than their current mortgage servicer. In addition, new limits were ...and more » |
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