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What's the difference between a refinance and a home equity loan? Which one is better for me?

Can someone explain the difference between a refinance and a home equity loan? And which is the better route to take...I have excellent credit and an income of over $100,000 a year. by stevefreeman55 from Austin, Texas. Jan 7th 2011 Reply


Richard Woodward (RichardWoodward)
#39 ranked lender in Texas - 106 contributions

It depends on the state - Texas has special lending laws in regards to Home Equity Loans. I am a Texas based lender with expertise in Texas Lending law.A home equity loan is a fixed or adjustable rate loan that is secured by the equity in your home. With a home equity loan, you may borrow a lump sum of money to be paid back monthly over a set time frame, much like your first mortgage or you will establish a line a credit that can be used simply by writing a check. With the home equity line of credit you may pay the balance down or off and access the funds again with a check. The terms home equity loan and second mortgage are often used interchangeably.A normal refinance is almost exactly like a first mortgage and it usually will replace the first mortgage. Terms are set at closing and can not change (unless you select an Adjustable Rate Mortgage) and your equity can not be accessed again without refinancing. Every case is different. I would be happy to speak with you for more information. Call me at 972-661-5136

Jan 7th 2011
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Paul Martin (paul@mortgageloansct.com)
#9 ranked lender in Connecticut - 2 contributions

A refinance typically pays off a first mortgage with a new first mortgage for the purpose of lowering the interest rate, changing the term of the mortgage and/or consolidating debt.A home equity loan or line of credit is USUALLY a second mortgage that goesbehind an existing first mortgage in second position.

Jan 7th 2011
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T.E. Sumner (T.E.Sumner)
#38 ranked lender in Texas - 3 contributions

A refinance is intended to change your current existing mortgage loan into another loan that has terms better for you, such as lower interest rate or lower payment because the term is longer. You cannot receive cash for other purposes on a plain re-finance. An equity loan is intended to tap the equity (difference between what you currently owe and the value of the house). Equity loans in Texas are limited to 80% of the value. So, if your current loan is 70% of the value, you can borrow only 10% more in Texas. A variant of the HELOAN is the HELOC, which allows you to set up a line of credit, rather than receive the limit (10% in the example) all at once, you can draw $4000+ at a time until you reach the limit. In Texas the fees chargeable for a HELOAN/HELOC are limited by law to 3% of the loan. Draws don't incur a fee on a TX HELOC. The only drawback to HE over a plain re-fi is that once you have taken equity out of a house (we say cash out), then only a cash-out loan can be used to re-finance it.

Jan 8th 2011
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