Home Equity Loans vs. Refinancing

What’s the best way to access the equity in your home?

Buying a home has always been thought of as a good investment, one of the reasons being the equity you build in your home. Years of home mortgage payments can actually pay off when you find yourself in need of extra cash. Whether you want to add a great room, repair the roof, consolidate debt, pay off expensive medical bills or help fund a college education, your home’s equity can help you accomplish that.

You have choices when it comes to tapping into this equity. There are home equity products like home equity loans and home equity lines of credit, or you can apply for cash-out home refinancing.

  • Home equity loans are loans you take out in addition to your current mortgage.
  • On the other hand, when you refinance with a home loan, you obtain a whole new loan that pays off your first mortgage.
  • In a cash-out refinance, you take out a loan that’s higher than the amount owed on the home, and you receive the difference in cash.

Whether refinancing or drawing on your home’s equity is right for you depends on many factors, but there are three key points on which to compare them: interest rates, repayment terms and closing costs.

Home equity loan features:

  1. Interest rates: The rates for home equity products are based on the Prime rate. When that is lower than the average rate on a 30-year fixed mortgage, a home equity loan or line of credit may be a better deal. Similarly, if your first mortgage has unusually low rates, choose a home equity product so you can keep your low mortgage payments. If you refinance, you’ll lose the interest rate from that original loan.
  2. Repayment terms: If you need to borrow less and can pay it off quickly, look into home equity loans. They tend to offer more short-term repayment options with competitive rates.
  3. Closing costs: Citizens Bank’s home equity loans and lines of credit don’t have closing costs, so that can save you some money up front.

Home refinancing features:

  1. Interest rates: Refinancing your home loan is generally a better option when you need to borrow large amounts of cash. Refinance rates tend to be lower than home equity rates for large dollar amounts like $75,000 or $100,000.
  2. Repayment terms: When you refinance, you can choose longer repayment terms associated with traditional mortgages, like 25 or 30 years. These longer terms can help lower your monthly payments, keeping them within your budget.
  3. Closing costs: When you refinance, you get a whole new mortgage, so you have to pay closing costs and appraisal fees just like you did on your first home mortgage. Consider the interest rate, the amount you’re borrowing and the length of time you’ll be in the home to determine if these costs are worth it.

Learn more about home equity loans and home refinancing

Choosing between a home equity loan and refinancing with a mortgage is different for every situation. Work with a home loan originator to find out which option is right for you. Call a Citizens Bank home loan originator at 1-888-333-1206 to learn more.

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