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Mortgage Refinance vs. Home Equity Loan: Which Is Right for You?

When it comes to borrowing money against your home’s equity, there are two common options: mortgage refinance and home equity loan. While both can be used to access cash, lower your monthly payments, or change the terms of your existing mortgage, they have different requirements, benefits, and risks. Here’s what you need to know to choose between a mortgage refinance and a home equity loan.

Mortgage Refinance

A mortgage refinance involves replacing your existing mortgage with a new loan that has different terms. Typically, homeowners refinance to take advantage of lower interest rates, shorten or lengthen the loan term, or switch from an adjustable-rate mortgage to a fixed-rate mortgage. A mortgage refinance can also allow you to borrow additional money by taking out a larger loan than your existing mortgage.


  • Lower interest rates: If interest rates have dropped since you obtained your mortgage, refinancing can help you secure a lower interest rate and save money over the life of the loan.
  • Fixed-rate mortgage: Refinancing from an adjustable-rate mortgage to a fixed-rate mortgage can provide stability and predictability in your monthly payments.
  • Cash-out refinancing: If you have equity in your home, you can use cash-out refinancing to borrow against that equity and use the funds for home improvements, debt consolidation, or other expenses.


  • Closing costs: Refinancing typically involves paying closing costs, which can range from 2% to 5% of the loan amount, depending on the lender and the loan type.
  • Extended loan term: Refinancing to a longer loan term may lower your monthly payments, but it can also increase the total cost of the loan and extend the time it takes to pay off your mortgage.

Home Equity Loan

A home equity loan, also known as a second mortgage, allows you to borrow a lump sum of money against the equity in your home. The loan is secured by your home and typically has a fixed interest rate and a fixed repayment term. Home equity loans are often used for major expenses, such as home renovations, medical bills, or college tuition.


  • Fixed interest rate: Home equity loans typically have a fixed interest rate, which means your monthly payments won’t change over the life of the loan.
  • Lump sum of money: With a home equity loan, you receive a lump sum of money that you can use for any purpose.
  • Potentially tax-deductible interest: If you use the loan to improve your home, the interest may be tax-deductible.


  • Higher interest rates: Home equity loans typically have higher interest rates than first mortgages, which means you’ll pay more in interest over the life of the loan.
  • Second lien on your home: A home equity loan is a second lien on your home, which means that if you default on the loan, the lender can foreclose on your home.
  • Closing costs: Like refinancing, taking out a home equity loan involves paying closing costs, which can add to the total cost of the loan.

Which Is Right for You?

The decision to refinance your mortgage or take out a home equity loan depends on your financial goals, your current mortgage, and your overall financial situation. If you want to lower your monthly payments or take advantage of lower interest rates, refinancing may be the right choice. If you need a lump sum of money for a specific expense, a home equity loan may be a better option.

Before making a decision, it’s important to compare the costs, benefits, and risks of both options and to consult with a financial advisor or a mortgage professional. By weighing your options carefully and understanding the terms and requirements of each loan, you can make an informed decision that

Neha Rajhttps://imp.news
Neha uses his broad range of knowledge to help explain the latest gadgets and if they’re a must-buy or a fad fueled by hype. Though her specialty is writing about everything going on in the world of virtual reality and augmented reality.
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