3 Reasons Refinancing Might Be Better Than Taking a Home Equity Loan
Posted on: 8 November 2016
If you have a 30-year mortgage and have paid on it for 10 years so far, your principle balance might have gone down significantly during this time. This means that you may have some equity in your home you could tap into to make those home repairs you have been dreaming of. You can tap into this equity by taking a home equity loan or by refinancing your home loan, and here are three reasons refinancing might be a better option.
It will leave you with only one loan
The first benefit of choosing refinancing over a home equity loan is you will have only one loan. When you refinance your loan and take additional money from the equity you have in your house, you will get a brand-new loan. The loan will pay off your existing loan and will include the additional money you borrow for the home improvements.
With a home equity loan, you will keep your current mortgage, but you will end up with a second loan. This means you will have two payments to make each month.
The interest rate will be lower
The second reason it might be better to refinance is for a lower interest rate. Interest rates on refinances are typically lower than the rates you will get on home equity loans. If you currently have an extremely low rate on your first mortgage, it would not be wise to refinance if your new rate would be higher. If the new rate would be lower than your current rate, refinancing would definitely be a better option than taking a home equity loan.
The interest you pay will be tax deductible
The other important thing to understand is that the interest you pay on a first mortgage is always tax deductible on your income taxes. This deduction helps decrease your taxable income, and it could help you get a bigger refund check.
The interest you pay on a home equity might be tax deductible. There are rules that apply to this, and you will need to find out whether or not you can write it off on your taxes.
If you need to tap into the equity in your home and can get a lower interest rate, refinancing might be the best option for you. To learn more about this and other options, contact a lender like Liberty Escrow Inc in your area that specializes in mortgage loans and refinancing.
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