Home equity is totally different from home refinance. Home equity is a second mortgage where you need to put up something as collateral. When you go for a home equity loan, the original mortgage is also there. With a home equity loan, home refinance does not take place. If you have no issues with the rate of interest or present terms of your mortgage and are only interested in equity, a home equity loan can be quite useful.

Pros & Cons of Home Equity and Home Refinance

If you are looking for fast access to your equity, a home equity loan is a much better option than home refinance. Generally, home refinance can take more than two or three weeks to close. On the other hand, most home equity loans can close in a matter of 7-10 days.

Another significant benefit associated with home equity loans are that you do not need to pay huge fees. There is no provision of pay points in home equity loans. You are only required to pay administration and closing fees.

Home refinance can help you immensely if you want to repay your loan over a long repayment period in order to minimize your monthly payment. The majority of home refinance loans have 10 year or 25 year terms and low interest rates. When it comes to rate of interest, home refinance loan is a much better option.

Prime Rate

Home equity loans are easier to get when the prime rate is less than the average rate that is applicable on 30-year fixed mortgages. You can save plenty of money in terms of closing costs but, more importantly, the rates on home equity loans are going to be a lot less compared to the previous mortgages.

Before availing any loan, you should know the objective of taking loan and which kind of loan suits your financial condition best. At this moment of time, home equity loans are quite a good option but with the changing economic condition it may not be the case after couple of years.

The rates of first mortgage are normally more affordable as banks feel more at ease with first mortgage loans. This is because banks have first lien position in first mortgage loans. Cash-out refinance can be quite advantageous when the rates of first mortgage are less than home equity loan rates.