Refinancing Vs. a Line of Credit
When you have equity in your home, you may think about refinancing your home or taking out a home equity line of credit. There are distinct differences between the two.
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Line of Credit
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The function of a home equity line of credit is to provide an open line of credit that you have access to at all times. The amount is a percentage of the equity in your home and you only pay back what you take out plus interest.
Refinance
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A refinance means you restructure your remaining loan amount to lessen your payments, decrease or increase your loan time or get a better interest rate. You can also use the equity in your home to get a new loan amount and cash back.
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Benefits
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The benefits of a line of credit is you have money available for emergencies, vacations or whatever your needs. With a refinance, the benefit is a change in your loan structure that either saves you money or gives an easier terms of paying the loan.
Features
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One feature of a line of credit is that it acts like a credit card. There is an interest rate and you only pay on what you take out. A refinanced loan does not add another loan and you usually end up in a better financial position.
Warning
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A line of credit is attached to the value of your home and thus if you default on the payments, the bank has the right to go after your house just like if you defaulted on your home loan payments.
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References
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