Should I refinance or get a home equity line of credit?

A real example from my desk

I recently worked with a couple in Phoenix–Scottsdale, Arizona who wanted to pay off a car loan and renovate their kitchen. Their first mortgage carried a rate lower than what's currently available, so replacing the whole mortgage with a cash-out refinance would have raised the rate on the entire loan amount.

Instead, we used a home equity line of credit with a competitive rate, up to 75% combined loan-to-value, and no fees or closing costs for them. That strategy may not fit every situation, but it illustrates the question: don't assume the loan you walked in asking for is the best one for you.

Questions to compare before deciding

• What are my current mortgage rate and monthly payment?
• What would the new payment and rate be if I refinanced the entire mortgage?
• Do I want a fixed rate, or am I comfortable with a variable-rate line of credit?
• What are the closing costs and fees for each option?
• What is the repayment period, and how much total interest would I pay?
• How long do I plan to stay in the home?

A lower payment doesn't automatically mean you're saving money

This is one of the most important things I explain to homeowners. Extending your repayment period can lower the monthly payment while increasing the total interest you pay over the life of the loan. We'll look at the full picture before you decide.