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The Nitty Gritty

A Simpler, Less Expensive Alternative to Mortgage Refinancing

After years of low interest rates, many homeowners are familiar with the term “refinance” and typically think of taking out a 30-year mortgage to do so. However, using a home equity loan to refinance your mortgage is another option.

Home equity loans are a simpler and less expensive alternative to the traditional mortgage refinance. As long as you don’t owe more than 90% of your home’s value, a first-lien home equity loan may be worth consideration.

”If you have equity in your home and are looking to refinance your mortgage without having to come up with a lot [of cash] out-of-pocket, a 15-year first-lien home equity loan could be a better option than a traditional first mortgage refinance,” said Ryan Keene, Vice President of Lending for Ardent Credit Union. 

How is a first-lien home equity refinance similar to a traditional mortgage refinance?

  1. The rate is fixed, which is a great benefit given that home loan interest rates are starting to rise. It also means a consistent monthly payment and no future surprises.
  2. An appraisal will be completed to determine the value of your property.
  3. The lender will verify your income to ensure that you can afford the new loan payment.

How can a home equity refinance be different?

  1. In many cases, there are fewer fees charged. For example, at Ardent, a first-lien home equity refinance funded for $250,000 or less has only a $95 appraisal fee from the borrower and no title insurance is required. This can save you thousands of dollars in closing costs.
  2. The application process will be more streamlined, which means less hassle for you.
  3. The loan must be repaid within 15 years, whereas as a traditional mortgage repayment can be extended to 30 years. A shorter term means less interest paid, but it may also mean a larger monthly payment. Enter your refinance amount into our comparison calculator to see the difference in monthly payments for a 15-year versus a 30-year loan.
  4. Private mortgage insurance (PMI) isn’t required even if your loan amount exceeds 80% of the home’s value, which will save you money compared to a traditional mortgage refinance.
  5. The time to closing is typically quicker than a traditional mortgage refinance. At Ardent, most home equity loans close in less than a month.

“Ultimately, deciding on which product is the best fit depends on a borrower’s budget and financial goals,” Keene said.  “If your goal is to pay off your mortgage as soon as possible and you can afford a 15-year loan payment, the first-lien home equity loan may be worth looking into since you’ll pay down the principal at a much faster rate than a 30-year loan.”

To learn more, contact a home equity lending specialist by emailing mortgage@ardentcu.org or call 800.806.9465.