by haytham fox
Question by christine [♥]: What is the difference between refinancing a mortgage and getting home equity line of credit?
My mom wanted to know! =]
Answer by jwishz
refinance means to replace your existing loan with a new one. line of credit is a second loan using the equity in your home as collateral to borrow more money
Add your own answer in the comments!
Refinancing a mortgage means your getting a lower interest rate (it may lower your monthly payments). Equity lines for homes are for home owners who want to do home improvement projects but need money for it. (Some people get equity lines of credit and use the money for other things besides their home) Its just another way for banks to get people to get loans.
With refinancing you will take out a new mortgage for 15/30 years at a cheaper rate than the original, and use part/all of that to pay off the remaining balance on the original mortgage. So you will only have 1 mortgage, and 1 monthly payment.
With a Home Equity line of credit, you still have your original mortgage but you take out an additional line of credit based on the remaining equity in the house. If you draw on that line of credit, you will then end up with 2 monthly payments – for the original mortgage and one for the Heloc. Rates for Helocs are generally higher than for mortgages.
In short, a home equity line of credit is different in that it is an account you can use or not use, but a home loan is a static loan arrangement.
When someone gets a mortgage or refinances their home this is a loan with a specific number of payments. For example, there are 15 and 30 year loans that will need to be paid back over 180 or 360 months, respectively. Once you use this credit it you continue to have payments for the term of the loan.
However, with a home equity line of credit, this is more like having a credit card–backed by the equity in your home. So your mom might use this credit and pay it back. Or she might not use it at all and therefore not have any payments until she uses it again. Home equity lines of credit are usually adjustable rates.
I’m a Texas mortgage broker; My company is http://www.mylendingplace.com