When your mortgage doesn’t match your financial situation it can cause a lot of stress. You don’t need to be trapped with a high-interest or variable-rate mortgage when there are other options available. But which one should you choose? Is it better to refinance your mortgage or take out a home equity loan?
Not everyone can qualify for the best mortgage options when they are looking to buy. Poor credit, or high debt-to-income ratios, or even just buying when the market is poor can push borrowers into paying more in interest and costs over time.
Even if you worked with a mortgage broker to get the best deal on a mortgage when you bought your home, your circumstances may have changed opening up different lending options. There are a wide variety of lending options available for people to meet their financial goals. Whether you are looking to lower your monthly payment, pay off debt faster, or need additional cash, taking advantage of the equity in your home could be the answer. But the way you do it will depend on your particular circumstances, and goals.
Why Choose Refinancing
A Re-fi loan may be a great option for you if your goals are to lower your existing interest rate or need to get cash based on equity built up in your home. Refinancing can sometimes allow you to:
- Get cash out to pay expenses
- Wrap closing costs into the loan itself
- Pay over a longer period, reducing your monthly payments
But, a refi loan isn’t right for everyone. It can sometimes have higher closing costs than a home equity loan. A longer term also means you could be paying on your home for a lot longer than under your first mortgage. Typically, refinancing is best for someone who plans to stay in their home for a longer period, and needs to make lower monthly payments, but still wants some cash in hand.
Why Choose a Home Equity Loan
A home equity loan or line of credit (HELOC) is sometimes a good alternative to a re-fi loan. If mortgage rates are high or you need more flexibility in your payment schedule, a home equity loan may be a better option. It can sometimes allow you to:
- Lower closing costs, so you pay less to the lender
- Take money out over time when you need it
- Pay your balance off quickly without penalty
If you are looking to borrow a smaller amount and want to get it paid off quickly, a HELOC may be your better option. But it could also mean paying a higher monthly payment.
Get Help Making the Right Choice
There are a lot of variables when deciding which refinancing option is best for you. Don’t take a shot in the dark. Let one of 1st Securities Mortage’s independent loan originators help you make the best decision given your circumstances and needs. We’ll help you understand the differences and weigh your options, so you know you’re making a smart choice for your money. Apply now to get started.