Refi vs Home Equity

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Refi vs Home Equity
Posted by: RL Jan 3 2004, 12:14 PM
I’m 6 mths into a 30yr mortgage @%5.626. I want money to consoldate some debt and build an office in my house. I need about $30K. Should I refinance the entire mortgage cashout @ the rate of 5.50 or home equity @ 10years @ 6.47?
Posted by: loanuniverse Jan 3 2004, 02:20 PM

When comparing alternative sources of financing, you have to look past the interest rate and look at your ”true” cost of funds. This includes the fees that will be incurred when getting the loan.

While there are several lenders that will waive the closing fees and will actually pay the expenses associated with a home equity loan. Not that many would waive the ones required to do a full scale refinancing. If your house is typical, you can expect to have to spend at least $3,000 in closing fees to do a refinance. Unless you can get the refinancing done at no cost, the Home Equity loan is probably your best choice. Here are some thoughts:

1 Your current mortgage rate is competitive no need to change it now.

2 The difference between the two rates is only 1% this translates to approximately $300 the first year and less every subsequent year since the 10 year home equity will amortize faster.

3 Refinancing will also increase the term of your loan by another six months since you start all over.

4 One good thing to say about doing a refinancing is that since the extra $30,000 will be amortized over a longer period of time, your monthly payment will be smaller than if you have to pay the first mortgage + the home equity.

5 The most important point, lots of banks want to book home equity’s due to the higher yield so finding a competitive rate won’t be much of a problem. Try locally first, if there is no luck try the net.

Hope this helps.
Author: Commercial Loan Underwriter