What’s the difference between a Home Equity Loan, Refinancing and HELOC
In: 7
**Second Mortgage** is when you already have a mortgage but you need some cash, so you sell your equity (how much of your home you own) back to the bank and you now have another monthly payment to buy back your equity. Your home is the collateral, so the bank can foreclose your home and sell it if you don’t pay.
**Home Equity Loan** is a type of second mortgage. **HELOC** stands for Home Equity Line of Credit, and is similar to a Home Equity Loan except you don’t have to use the max amount. If approved for $25k, you can only use $10k if you want.
However, you can also do both even if your house is paid-for.
____
**Refinance** is to redo the mortgage on your home (or car) to get a lower rate. This can be done with your original lender or a new one (for instance, my father recently got a car loan and the rate was too high, so the next day he went with a local credit union, they paid off the first lender and now he pays them instead).
It is financially savvy to utilize this if your current interest rate is high. They can be factors of just one lender just being better than another, or after a few months/years your credit score is better or the economy is better (for instance, mortgage & car loans have about 2x the interest rates from just 1yr ago).
Latest Answers