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There is No Place like Home with a Refinanced Mortgage

by Kristi  Shibata
Mortgage Directory Columnist

Has HGTV inspired you to renovate your home? Home improvement projects have been on an upswing during the past two years as homeowners renovated to improve their house's resale value. However, recent cooling real estate markets and decreases in home equity have prompted homeowners to remodel to improve their comfort and satisfaction with their homes. Consider refinancing your mortgage to fund your "new home."

Use Home Equity to Build Equity

Your home equity can generate ready money to pay for an improvement project. Cash-out refinancing is one way to access home equity. You simply refinance your mortgage for more than the payoff of the old loan. You pocket the difference between your old and new mortgage. This influx of cash can be used to pay for the expansion of your living room or add that office you always wanted.

The Home Equity Loan Option

Homeowners who like their current mortgage loan will not want to refinance their mortgage. With a home equity loan, you can take out a second mortgage subordinate to your current one. Home equity loans offer the advantage of a fixed interest rate and monthly payment. You are free to use that cash to fund your home projects.

The HELOC Option

Home Equity Lines of Credit (HELOCs) are also second mortgages, and another way to fund a renovation. If you plan to stretch out your project and pay as you go, a HELOC could be the smartest option. The chief advantage of a HELOC is its flexibility--it's a line of credit that can be tapped and repaid repeatedly.

Choose a Home Loan that Works For You

If you can improve on the terms of your existing mortgage and will keep your house long enough to recoup the cost of a refinance, the cash-out refi is the way to go. But cash-out refinances tend to cost much more than home equity loans or HELOCs. A home equity loan is ideal for those who don't want to refinance their existing mortgage, prefer the stability of a fixed rate and need a large sum all at once for their project. Still others will opt for HELOCs, especially those who want the flexibility to fund and complete their project in stages.

By looking at your existing mortgage, assessing the amount of available home equity, and determining the scope of your project, you can select the type of loan to best meet your needs.

Sources: About the Author
Kristi Shibata is a public relations and communication specialist and regular Mortgage Directory columnist. She graduated from University of California, San Diego, with a BA in Communications.

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