What should I get – a first mortgage refinance vs home equity loan?


When you need a home rehab, or quick funds to upgrade your business; or have plans for a long needed holiday trip you might be thinking how to access your home equity - a first mortgage refinance vs home equity loan? How do you make this decision?

There are a lot of valid reasons to go both roads. Imagine you have a $350,000 house with $200,000 first mortgage on it, and you need $50,000 for general repairs. Do you refinance your first mortgage to $250,000 with cash-out, or you take out a home equity loan with the same or another lender?

How to make the choice between refinancing and taking a home equity loan or line of credit?

You'd better need more cash when you are taking a cash-out or combining first mortgage and home equity debt. Refinancing should be your preferred option if:

  • your first mortgage has higher than market rates;
  • you need at least some $20,000;
  • you need no immediate cash;
  • you want long-term debt.

A home equity loan (HEL), a HELOC - home equity line of credit, or a stand-alone second mortgage will be your top choices, if you

  • need quick cash for less than $20,000;
  • your preferred repayment schedule is shorter than 20 years;
  • if your first mortgage has great low market rates which are not possible to obtain if the first loan is refinanced.

Some lenders do stand-alone home equity loans and second mortgages for at least $40,000.

Don't get worried if some lenders ask that you borrow at least $40,000 to make the loan. Try your local bank - they are likely to be happy to get you a $10,000 HEL or HELOC.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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