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Home Equity Loan vs Refinance

By Conrad Bastable

Home Equity Loans

Many families consider taking out a home equity loan when looking for an additional infusion of cash ? whether it be for a new kitchen, a college education, or medical payments. Having paid back some portion of your mortgage, you will now own a greater percentage of your home. In a Home Equity Loan, you take a loan out with some of that percentage as collateral. Usually the lender will take 70%-80% of the appraised market value of your house and subtract what you owe on your mortgage to get the final amount available to you as a loan. If you are a responsible borrower with a steady source of income, the tax-deductible nature and low interest rate of a Home Equity Loan will probably be very appealing to you.

However, you should be careful to avoid "reloading." Reloading occurs when you take on a loan in order to pay off a weight of debt you are already struggling under. In this situation, further debts and loans are rarely the best solution. Conduct a thorough review of your finances before you proceed, and make sure you will be able to make the payments on time comfortably.


A refinance is a very similar process to your first mortgage. However, it is important to consider the full financial implications of a refinance package. While it may be very attractive to bundle your smaller monthly bills into one, consolidated, low interest payment, over 15 or 30 years you might end up paying much more than you would have. If you can reduce your current interest rate enough, usually by around 1% or more, and you plan on staying in your current home for a long enough period to justify the extra costs associated with the refinance, it may be worth your while financially.

Be aware that if your home is re-appraised, its market value could be less than it was at the time you got your first mortgage, which would affect your ability to secure a beneficial refinance.

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Conrad is a rising junior currently pursuing a Bachelor of Science in Mechanical...

Phone: 617-494-8838

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