What’s the difference between a Home Equity Loan, Refinancing and HELOC
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Home equity loan and a HELOC are both additional loans against your home — what sometimes are referred to as second mortgages. While you continue to pay your primary mortgage, you then borrow against the equity you have and also make payments toward that loan.
A home equity loan is a fixed amount of money and then a fixed payback schedule. Like you borrow $100k to put on an addition, and then pay that back over 20 years.
A HELOC is a line of credit, where you get a limit, but can draw only a portion of that at a time. Maybe you got a $100k HELOC, but you only need $15k for a roof now, so that’s what you borrow. A few years later you pull out another $50k for a kitchen remodel. There is typically a period of like 5 or 10 years in which you can draw out more money, and then a repayment only period.
Refinancing is paying off your current mortgage entirely, and then getting a new one. If you take on a larger mortgage than your current balance, you could pull money out to use for remodeling, etc. Like if your home is worth $500k and your mortgage balance was $300k but you then take out a new $350k mortgage and then have $50k to use for a new kitchen.
Home equity loan and a HELOC are both additional loans against your home — what sometimes are referred to as second mortgages. While you continue to pay your primary mortgage, you then borrow against the equity you have and also make payments toward that loan.
A home equity loan is a fixed amount of money and then a fixed payback schedule. Like you borrow $100k to put on an addition, and then pay that back over 20 years.
A HELOC is a line of credit, where you get a limit, but can draw only a portion of that at a time. Maybe you got a $100k HELOC, but you only need $15k for a roof now, so that’s what you borrow. A few years later you pull out another $50k for a kitchen remodel. There is typically a period of like 5 or 10 years in which you can draw out more money, and then a repayment only period.
Refinancing is paying off your current mortgage entirely, and then getting a new one. If you take on a larger mortgage than your current balance, you could pull money out to use for remodeling, etc. Like if your home is worth $500k and your mortgage balance was $300k but you then take out a new $350k mortgage and then have $50k to use for a new kitchen.
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