Home equity loan is
a secured loan got against the equity built on the home over the
outstanding mortgage on the house.It is considered as a second
mortgage if there exists some mortgage or debt on the home.If there
is no mortgage on the house then home equity loan is referred to as
first mortgage in which the equity built on the house is
collateral.To conclude Home equity loan can either be a first
mortgage or a second mortgage depending on the situation.
Pros
of home equity loan
It is possible
to get 100% or more on the value of the home equity reducing the
mortgage or debt on the home
The interest of
the home equity loan is tax deductable
Additional
charges like appraisal fee,stamp duties,arrangement fees etc are
levied
Cons
of home equity loan
The home equity
loan reduces the actual equity of the house
The home equity
loan if the re-payments are not done properly puts your home at
stake
Most of the
home equity loan requires an excellent credit history since it is
considered as second lien. In case of any financial difficulties
the first lien is repaid first and then only the second lien is
considered.
Refinance
Refinance is also a secured loan but in this case the first mortgage
is paid off and you hold some extra money in your hands for other
expenses.
Pros of refinance
It mainly
reduces the current interest rate.
It serves
profitable when the rates are reduced.
When there are
other expenses to be paid off refinance helps the homeowners to get
extra money with lesser interest rate.
Cons
of refinance
If you opt for
a 30 year refinance you will have to keep on paying the mortgage for
30 more years which is so hectic.
The balloon
payment is the worst part as it leads to foreclosure or loss of home
if it is not paid.
The pre-penalty
payment has to be considered.
If minimum
amount is paid then the borrower will need to pay a lump sum balloon
amount which is ridiculous.
Hence both refinance
and home equity loans have their pros and cons.depending on the
situation it is in your hands to take the right decision.
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