Why Choose a Home Refinance Loan Over a Home Equity Line of Credit?
A home equity line of credit allows a home owner to tap into the equity of the home over a predetermined amount of time, providing for a large upfront availability of home equity. Home refinancing,on the other hand, has different benefits.
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Function
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Homeowners refinance to get a lower interest rate, which results in lower monthly payments, or to shorten the term of the loan, which reduces the overall amount of interest paid. Economist Bob Walters of Quicken Loans says that consumers earning dismal rates of return in the stock market could save that much and more by simply buying down their interest rate a few percentage points with a home refinance.
In the case of a home equity line of credit, there is no savings attached, since it is an additional loan that a consumer adds onto a first mortgage.
Costs
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Costs associated with both a refinance and home equity loan will include a property appraisal, application fee, origination fees, lender expenses and interest rate buy downs (or points) if applicable. When comparing a home equity line of credit and refinance, the closing costs will be close to one another.
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Time Frame
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Time to close on either a home equity line of credit or a refinance will average between 30 to 90 days. This will depend on how quickly income and debt documentation can be provided and verified.
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References
- Photo Credit coins image by Petr Gnuskin from Fotolia.com
