Home Equity Refinancing and Home Equity Loans. An Explanation

What exactly is home equity, home equity loan and home equity line of credit and why should you consider a home equity refinance? This article will answer these questions for you.

Equity, simply put, is the difference between how much you owe on your home and what your home is worth. For example if you can sell your home for $120,000 and you owe $50,000, then the equity you have in your home is $70,000.

A home equity loan is a loan that has been taken on the equity of your home. It is a one-time lump sum that is paid off over a period of months, just like your mortgage.

A home equity line of credit works like a credit card.  With this line of credit you have essentially borrowed a specified amount of money, but you use it as needed and pay it back, just like a credit card. For example you have a line of credit of $5000. You use $1000 of this for a down payment on a car, then you make monthly payments on that $1000. While you are making the payments on the $1000, you can borrow another $500 against the $5000 line of credit and then continue to make payments on total amount that you borrowed from the $5000.

When you apply for a home equity loan or a home equity line of credit you are using your home as collateral. This means that you are guaranteeing the debt against your home. This means that if you do not repay your debt, the lender can legally seize your collateral, which in this case is your house, and sell it to get their money back.

Sometimes it is advantageous to do a home equity refinance. If you obtained your original home equity loan at a high rate of interest, it may make sense to refinance the loan. Sometimes by refinancing, you will be able to save quite a bit of money in interest.

If the monthly payments are becoming too much for you, look into refinancing to bring the payments down to a more manageable level. For help with this process go to your lender and explain your situation to them. They should be able to work with you to get a better rate on your home equity loan.