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?
- 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.
- An appraisal will be completed to determine the value of your property.
- The lender will verify your income to ensure that you can afford the new loan payment.
How can a home equity refinance be different?
- 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.
- The application process will be more streamlined, which means less hassle for you.
- 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.
- 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.
- 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.