Refinance. Home Equity Loan. Home Equity Line of Credit. These words all relate to your home, but they have very different meanings. At 4Front we can help you with each one, so here is a little guide to help you understand the difference and see what is right for you.
Refinance
Refinance literally means to finance something again. You take your existing mortgage and trade it in for a new one and possibly a new balance. You might do this to take advantage of lower interest rates, or change the life span of your mortgage. Perhaps when you bought your home your financial situation led to a 30-year mortgage and now that you’re older, and wiser, you would like to pay off your home sooner with a 15-year mortgage. In many cases, shortening the lending period will save you big money on interest!
Another reason you may look to refinance is to change lenders. 15 to 30 years is a longtime commitment and lenders won’t always meet your needs. If you think you might be in the market for a refinance of your existing home loan, ask around and see what current rates are like, you can find out more about 4Front’s refinance options HERE.
Home Equity Loan
Let’s start with the definition of home equity, which is the difference between what you owe and what your home is currently worth. We’re always talking about your home working for you, this is what we mean! Most homes increase in value as the years go on, and if you owe $150,000 on your home and it’s valued at $200,000, you have a total of $50,000 in home equity. Hooray! It’s important to note that the amount you are able to borrow will depend on a number of factors and we advise you to speak with a member of our lending team to learn more about your options.
A home equity loan is a secondary mortgage in which your home is used as collateral. The amount of the loan is based on the equity in your home along with some other factors. The big thing to remember is that a home equity loan is a lump sum disbursement. You get your money and you pay it back just like your mortgage. The interest rate is fixed and there are no surprises with monthly payments.
Home Equity Line of Credit
A home equity line of credit (HELOC), much like the home equity loan, is based on the equity in your home. However, a HELOC is a revolving credit line. Once approved for a HELOC you use it when you need it, pay back what you use, then use it again. The line of credit remains open until its draw period ends. Because the amount borrowed can change, minimum payments can also change, depending on the credit line’s usage and variable rate.
HELOCs have two parts. The first is a draw period during which you can withdraw funds, is seven years. When the draw period ends, you cannot borrow any more money. The second is a repayment period which is 15 years, making the total term 22 years. During the HELOC’s draw period, you will make interest and principal payments which are calculated on a 15-year term. To learn more about HELOC's click HERE.
Whether you are looking to renovate, add some square footage, or pay off some debt, there are options for every scenario. Learn more through our website or reach out to our lending department for more information. In closing, we’ll ask this one more time, what is your home doing for you?