What Is the Difference Between Home Equity Loan & Refinance?


What Is the Difference Between Home Equity Loan & Refinance? thumbnail

Both a home equity loan and refinancing involve loans secured by a portion of the home’s equity. However, they are distinct loan instruments subject to different regulations and typically sought by homeowners for different reasons.

Home Equity

    A home equity loan uses equity in a borrower’s home as loan security, as explained at Investorwords.com. Lenders tender such loans toward the equity value minus any mortgage claims against that equity, as described at FTC.gov.

Reason

    Typically, homeowners seek home equity loans to liquidate, over the life of the loan, some cash value. Owners borrow against the home’s valune in this way for purposes such as remodeling.

Caution

    Although you may find a home equity loan described as a second mortgage, as at Businessditionary.com, a true home equity loan is not a mortgage nor subject to the foreclosure regulations true mortgages must adhere to. Should property values, and thus the home’s equity, decline, the lender can more easily seize property than a mortgage lender can.

Refinancing

    A refinance is the replacing of one mortgage with a different mortgage loan, as explained at Investorglossary.com. The new mortgage loan pays off the previous loan and in some cases other debts as well.

Reasons to Refinance

    Refinancing might offer the homeowner a lower interest rate, a lower monthly payment, a reduced loan term, a changeover from a variable to a fixed rate or any combination of these advantages.

Related posts:

  1. Can You Refinance Home Equity Loans?
  2. Home Mortgage Equity Refinance Pros and Cons
  3. How to Get a 125 Percent Home Equity Refinance Loan
  4. Home Refinancing Vs. Home Equity Loan
  5. What Type of Property Is Eligible for a Home Equity Loan?
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