Anonymous
Anonymous asked in Business & FinanceRenting & Real Estate · 1 month ago

What happens when you get an equity loan and is it the same as refinancing?

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  • Anonymous
    1 month ago

    You asked the same stupid question before. STOP.

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  • 1 month ago

    Nothing happens.  What did you expect?  If you did not make any other kind of loan clear - that you wanted something else, then a refinance is what you got.  You signed it.  You can read, can't you?  You didn't have to sign it.  Nobody held a gun to your head.

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  • 1 month ago

    No, a home equity loan (HEL) is not the same thing as refinancing.

    When you refinance, you take out a new loan and pay off your old loan in full, so you have just one mortgage. If you have enough equity you can cash-out some of it. For example if you have a $200k mortgage on a house worth $300k, you could refinance by borrowing $250k, the first $200k pays off your old mortgage, and you get a check for $50k from the new lender.

    When you take out a home equity loan you are taking out a 2nd loan against the house. Your existing mortgage remains in place but you have a 2nd loan. So using the example of having a $200k mortgage on a $300k house, you would just take a new loan for $50k, then you'd still have the original $200k mortgage, with a separate $50k loan.

    The other option you didn't mention is a home equity line of credit - abbreviated as HELOC. This is like a credit card secured by your house, you'd be approved up to a maximum amount, but you don't actually borrow the money until you actually need it, so you don't pay interest on it before you need the money.

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  • 1 month ago

    It is not the same as refinancing, though the application and approval process is no different.

    A refinance is the same as a first mortgage - you make payments until paid off, or you sell, or you refinance again. Once it is paid off, if you want equity out of the house, you refinance again. Like first mortgages, interest rates are generally fixed.

    A home equity loan is a second mortgage. You take one of these when you already have an existing mortgage and want to get at some of your equity.

    A third option is the home equity line of credit. The application and approval process are similar to loans, but there are some primary differences:

    1. Interest rates are adjustable and tied to, usually, the prime rate. As a result, interest costs can be higher than fixed rate loans.

    2. They work like a credit card. You have a borrowing limit that you can use as you need, and as you repay the principal, it is available to again access. This is a major advantage over fixed loans.

    3. The lender will often absorb the application and closing costs that you pay with fixed rate loans, provided that you do not close the HELOC before a certain time. For mine, that was three years.

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  • GTB
    Lv 7
    1 month ago

    As you pay off your mortgage, if the house value remains or increases, there is a difference between the mortgage balance AND the market value. This is considered "equity" and if you have sufficient equity built up you can borrow against this equity. This is often called a "second mortgage". You now pay off 2 house payments, one on the regular mortgage, one on the equity loan. Sometimes, if the interest rate in a mortgage is less now than when you made your original house loan, you are better served by a refinance to the lower rate, take out the equity at the same time and end up w a larger mortgage but not a second mortgage. What makes the best sense is dependent upon your circumstance. Shop around when you do this.

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  • 1 month ago

    Home Equity Loan - 

    A separate loan secured by the equity in your home.

    For example, you have a home worth $200,000 and you owe $120,000.  If you have decent credit, you may be able to borrow $40,000.   However, this leaves you with two mortgages and two mortgage payments every month.

    Refinancing  -

    Generally, borrowed against your home and using the proceeds to pay off the first mortgage.

    For example, you borrow $120,000 at 4.5% interest and pay off a $120,000 mortgage at 6%.   You still owe $120,000 but your monthly payment would be lower.

    Cash Out Refinancing -

    Taking out a new larger mortgage that pays off the first mortgage.  Using the above example.  Instead of taking out an additional $40,000 mortgage, you take out a $160,000 mortgage and use the proceeds to pay off the first mortgage.  This leaves you with only one mortgage payment per month though it is probably a bit bigger than it used to be.

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  • 1 month ago

    Equity loan is a 2nd mortgage on your house.  The interest rate is low.  They provide a credit line that you can use any way you want once it is approved.  After 7 years the credit line is closed and the outstanding balance turns into a loan.  On an equity loan you do not need to pay anything back until the 7 years are up - you do pay the monthly interests.

    This is not refinancing.  Say you need a garage but don't have the $20K for it. You take out a regular improvement loan at 8% or get an equity loan at 3% and save money.  

    Refinancing is when the bank looks at your mortgage and offers a new loan on the remaining balance at a reduced rate.  

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