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Mortgage Line Of Credit - Home Equity Line of Credit Compared to Mortgage Refinancing

refinancing mortgages how refinancing mortgages work information to think about

Whether or not you get a home equity line of credit or simply refinance your mortgage depends entirely on your current financial situation. For example, you may need money to pay off all of your bills or you may need money to avoid losing your home. A home equity line of credit could help you pay your bills while refinancing your mortgage could keep you from losing your home. Both of these solutions depend on a type of secured debt, which is usually the home in which you live. Of course, this is the only similarity that the two have. If you were to choose a home equity line of credit when all you really need is mortgage refinancing, then your financial situation may worsen significantly.

Home Equity Line of Credit

If you are trying to place a secured debt as collateral to get money for any number of reasons, then a home equity line of credit may be exactly what you need. People normally place their home as the secured debt. Your line of credit will usually be based off your home’s original appraisal value. You can use this line of credit to pay for any type of expense that you need to pay. This may include education expenses, medical bills, home improvement bills, or even credit card bills. However, you will not normally get all of the money in one single check. You could receive the money over the course of multiple checks or you could just receive a credit card. You could use this credit card to take money from the line of credit whenever you need it.

How Home Equity Line of Credit Works

If you are approved for home equity line of credit, then you will be given a certain amount of credit to use. The U.S. Federal Reserve states that the amount of credit you receive is typically based on a percentage of your home’s value. That value is then subtracted from the amount of debt that you owe on your current mortgage. In many cases, you will get the amount of money that you have already put on your home. This is typically called your home equity. As far as home equity lines of credit goes, your lenders will give you a certain amount of time to pay back that money. This could be anywhere between five and fifteen years. There will be certain costs that you will have to take care of in order to get or keep the line of credit. This could amount to hundreds of dollars.

Refinancing Mortgages

Refinancing your mortgage essentially means that you are getting a second mortgage on your home. Refinancing your mortgage is nothing like a home equity line of credit. By refinancing your mortgage, you are essentially paying off the rest of your first mortgage. Many people refinance their first mortgage in order to lower interest rates, lower the monthly payments, or even shorten the length of the mortgage. Refinancing your first mortgage is typically a very good way to take care of a mortgage that is beginning to become too stressful. Many people believe that they are switching out the bad mortgage for a better one.

How Refinancing Mortgages Work

If you are interested in refinancing your first mortgage, you will just have to go through the same application process that you went through when you first applied for your current mortgage. This means that the company offering mortgage loans will study how long you have been employed, how much your home is worth, and your debt to income ratio. By studying these factors, the company will be able to tell if you are a risk to them or not. According to the United States Federal Reserve, most people will have to pay anywhere between three percent and six percent of outstanding principal. This amount is usually for refinancing fees.

Information to Think About

Although a home equity line of credit and mortgage refinancing are designed to help you in the best way possible, there is no doubt that making the wrong decision could significantly hurt your financial position. For example, a home equity line of credit could potentially cause you to lose your home if you miss a mortgage payment. You could also face penalty fees if you miss payments on your refinanced mortgage.

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