Basics of Home Equity Loans and Refinancing

OCT 22, 2013

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Just because you have a home loan doesnt necessarily mean you understand the basics of other types of home credit, such as refinancing or home equity loans. Home financing can be confusing, so its important to understand the different types of home loans, and the situations when you might need one.

A mortgage This is the money you borrowed to buy your home. Your credit and income strongly influenced how much you could borrow, and the interest rate and terms the lender offered you. No matter how you leverage your home in the future to obtain further credit, the mortgage company will always have first claim on your home should you default on the loan.

A home equity loan Commonly, this is a second loan homeowners take against their homes, but you can only get it if you have equity. In other words, your homes value must exceed the amount you owe on it. Home equity loans are often used to fund home improvements or repairs, but you can also use the money for other purposes, such as college tuition or travel.

Refinancing If interest rates have fallen since you took out your initial mortgage or home equity loan, you may consider refinancing the loan to take advantage of lower rates. Refinancing basically replaces your existing loan with a new, cheaper one. However, if youre upside down on your mortgage meaning you owe more on the loan than the home is worth it may be difficult to obtain traditional refinancing, even with good credit. For some homeowners, the federal Home Affordable Refinance Program (HARP) may offer an alternative. You can learn about HARP eligibility requirements at

As with any important credit decision, you should carefully review your options for borrowing and your reason for incurring the debt before taking action.


This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

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