The Home Equity Loan Advantage

The Home Equity Loan Advantage

No two loan programs are exactly alike.  Home refinancing and cash out refinancing programs vary in many ways. But one home loan program that many tend to shy away from is the home equity loan.  

The reasons are simple. Home refinancing comes with the possibility of lowering ones overall debt in one or two ways.

1. Lowering the interest rates and thereby saving possibly tens of thousands of dollars over the life of the loan.

2.  Reducing the monthly payment and pocketing the savings.

That said home refinancing may appear to be the better deal. But for many there is a greater money saving advantage when opting  for a home equity loan or line of credit. Your first step is to weigh the pros and cons. Consider your financial goals and means of reaching them. Use the "Home Equity Advantage" List to determine what move is best for you.

1. You have to pay closing costs when you refinance your loan; you don't have to pay closing costs for a home equity loan. Closing costs can amount to hundreds or thousands of dollars.

2. If your current mortgage is at a lower interest rate than you could get now by refinancing, it's probably better to get a home equity loan.

3. You'll have to pay private mortgage insurance if you end up borrowing more than 80 percent of your home's value. If you would have to pay PMI, it might be cheaper to take out a home equity loan.

4. Paying off high-interest credit card debt. Paying a lower interest rate and taking a tax deduction is smart but lengthening the time it would take to pay off the credit card debt may not be. Why take 30 years to pay off credit card debt that could be wiped out in five or 10 years using a shorter-term home equity loan.