In our last post, we talked about ‘ HOME EQUITY LOAN VS HOME EQUITY LINE OF CREDIT ‘. Now let’s talk about Home equity loan vs. Refinance?
Home equity loan vs. refinance loans have also been compared, differentiated and juxtaposed. This is because of a few differences that exist in the terms themselves. For one, the idea behind a home equity loan is clear. It is the type of loan that is simply backed against the home of the borrower as collateral. It comes with a fixed interest, can be used to finance anything, is usually up to the value of the property it is backed against, and it can come as a line of credit. However, in literary terms, refinance or refinancing is basically to finance something all over again. In finance, Refinance is a situation where a borrower uses one loan to pay back another loan. In essence, it involves swapping out loans. It is about having to move debt to a different lender when you cannot pay up. It is borrowing from another lender to pay up an outstanding loan. If you can’t already see the correlation between home equity loan vs. refinance loans, no worries. Here are the differences between home equity loan vs. refinance loans.
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Home equity loan vs. refinance loans – Differences
Here are some clear differences between the home equity loan vs. refinance loans.
This is the first difference between both the refinance loan and the home equity loan. The security, which is also known as the collateral, for a home equity loan is the borrower’s own home. For refinancing, the option isn’t restricted to the home.
Home equity loans can be used to refinance and can be refinanced
This similarity or difference is really clear. Home equity loans might have been taken for a certain period and cannot be met up again by the borrower. In this case, the borrower might now take the refinance option to cover for it. In the same regard, the home equity loan isn’t specifically required for anything. It can be used to refinance a previous loan. However, it would be an expensive option if it is taken just to refinance.
It is easier to get a home equity loan than a refinance loan. This is simply because it is essentially easier to get a home equity loan with a lower credit score. For refinance, you would need a much higher credit score. The challenge with this is that when you’re looking to refinance, your credit score would now be lower than when you originally got the home and refinancing may be costlier and unattainable even.
Duration of payment
The duration of repayment for a home equity loan could be 5 to 10 years. For refinancing, it can be as long as 30 years. As such, it is usually for a longer term. That is part of the reasons why the interest rates are lower. Home equity loans vs. refinance loans in this regard make it clear that the duration should determine which you go for.
Before choosing, however, it is important to know which is best for you. A home equity loan costs more to repay because of its high-interest rates. However, you enjoy wonderful tax benefits. The refinance option also offers you lover interest rates, but would be the preferred option if the duration of repayment is much longer.