How to Compare Refinancing and Home Equity Loans

It's hard to understand your options when choosing to use some of the equity in your home. There are several considerations that come into play depending on what you're trying to achieve. Investigate these options on your own in addition to the advice of your bank or broker.

Instructions

Difficulty: Easy

1. Isolate what your primary goal is before comparing the terms of an equity or refinance loan. Are you paying off debt? Do you want to use the money for home improvements or an investment? Knowing the answers to these questions will guide your choice.
2. Understand that if you refinance, your loan will be more permanent. You cannot pull money back out without going through the process again. A home equity loan is typically more versatile if you choose to use it as a line of credit.
3. Compare if you can get a lower rate on your first mortgage by refinancing. If you can, then a refinance with cash out is a better bet.
4. Examine carefully the terms of each option. A home equity line may have a teaser rate and then adjust wildly later.
5. Call your tax adviser to find out which loan will give you a better write off. If the difference is substantial then you should consider it in your decision.

Tips & Warnings

• Make sure that your mortgage broker's appraiser does not over estimate the value of your home so you don't end up owing more than it's worth. Be conservative or choose your own appraiser.