When homeowners find themselves in a situation where they need a little extra cash, they often think about changing their mortgage to come up with it. So when you find it’s time to do the same, which is better – refinancing a mortgage, or getting a home equity line of credit?
The answer really depends on your own situation, and which will work best for you. A cash-out refinance, which will give you those extra funds you need, will only give you a minimum of $10,000, so if you don’t need that much and don’t want to borrow that much, you might be better off with a home equity line of credit. If you’re going to refinance or remortgage, you’ll also have to qualify to do so, and you may also have to pay some prepayment penalty fees, which can be pretty hefty and usually about three months’ worth of interest the lender would have profited would you have kept your existing mortgage.
However, even though home refinancing can be fairly complicated, it does still have its benefits. With a refinance you can port the terms and the interest rate that you’re currently carrying on your existing mortgage. This can be especially beneficial for those that have a mortgage they really like, with an attractive interest rate. By only reworking the mortgage and not changing it completely, the homeowner can still get the cash they need, and keep the mortgage they love.
If you don’t want to borrow the full $10,000 or you don’t want to go through the complicated process of refinancing, a home equity line of credit may be best. With this option you’ll still keep the original terms and rates on your first mortgage, but you’ll also have a second mortgage; and one that only comes with a variable rate, as HELOCs do. Because of this, you’ll need to make sure that interest rates aren’t too high at the time you apply, and that it won’t end up costing you too much. But with a HELOC you also won’t have many of the prepayment fees and closing costs that you’d have with refinancing.
A HELOC will also allow you to borrow up to 80 per cent of the equity you hold in your home, should you qualify, and the repayment schedule can be very relaxed with interest only payments due for most of the life of the loan.
Without fully understanding your personal situation, no one can really tell you whether a home refinancing or home equity line of credit is best for you. Speak with a mortgage professional that can help, and who can advise on which one is really right for you.
