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Refinancing and Home Equity

Posted by  on Apr 16, 2009
 
Refinancing can be a wonderful idea if you are interested in making the most of your investments. It can be a good idea depending on your situation. For instance, if you have a home that is worth $150,000 and you owe $100,000 on the mortgage, you have $50,000 of equity in your home, which is like having $50,000 in a savings account. A cash-out refinance allows you to access that equity. For instance, if you need $10,000, you can refinance your mortgage so that you owe $110,000 and the lender then gives you $10,000 in cash at closing.

With a home equity loan, you can keep your original mortgage and take out a second mortgage for the amount of equity you are tapping into. Since every homeowner's situation is different, your best option will depend on your specific circumstances. Quicken Loans has several mortgage options to choose from. When you compare home equity loans and cash-out refinance further, there are a couple things you can consider to figure out the best plan.

Ask yourself how fast you need the money. Remember that home equity loans close considerably faster than a refinance (in as little as five days.) In addition, home equity loans typically require minimal fees. Refinancing, on the other hand, may carry higher loan fees and possibly points.

Remember that a home equity loan is a second mortgage, and therefore, it typically has a higher rate than a cash-out refinance (a reflection of its higher risk to the lender). However, if you already have a great rate on your mortgage, it may be worthwhile to get a home equity loan rather than refinance and lose the low rate you already have on your first mortgage.

When refinancing, you are generally limited to a term of fifteen or thirty years. With a home equity loan, you have more flexibility and can take advantage of a shorter term, thereby greatly reducing your overall interest costs.

A Quicken Loans mortgage expert can help you compare a cash-out refinance or a home equity loan. With your own personal mortgage expert to guide you, you will have no trouble determining which type of loan is right for you.

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