Refinance Mortgage Or Get Home Equity Loan

Added February 25, 2009 by Ilyce R. Glink

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Summary: You may want to refinance your mortgage but because high debt like medical bills, getting a home equity loan may be the better option. Home equity loans are often faster and cheaper to get than going through the process of refinancing your mortgage.

Q: I have an $11,000 mortgage. I'm trying to refinance my loan and take out another $20,000 in cash to repair some things in the house and also to pay some of my medical bills.

I have a lot of medical bills on my credit report because I had a job without health insurance and then lost my job because I became disabled.

My loan has an 8 percent interest rate and the bank is offering me 7.4 percent if I refinance.

I thought lenders did not take medical bills in consideration when deciding whether or not to approve you for a loan. I guess I was wrong. What can I do?

A: Lenders do look at all of the bills you owe and how much it takes each month to service that debt. Since you have so many medical bills, your debt-to-income ratio could be out of whack.

Another problem you may be having is that you're trying to refinance a loan that's below $50,000 -- that amount is the profit threshold for many lenders.

What about taking a different path? Instead of refinancing your mortgage, you might try to get a home equity loan from your local bank and paying off your original loan. Not only is it a lot cheaper than refinancing a mortgage, it's faster and easier. You will also have a competitive interest rate that may be lower than what you've been offered or are now paying. If you decide to pay off your old loan with a home equity loan, you will have many options: some loans will have floating rates, others may be fixed and still others may be for a shorter period of time. You will have to determine which of the many alternatives available in the home equity market will be best for you.

Start your search for a home equity lender by visiting BankRate.com. You can also go in person to your local bank to inquire about the fees associated with a home equity loan. You might also want to visit myFICO.com to get a copy of your credit history and credit score. That way you'll know exactly what is being reported and what you can do to raise your score to the highest level possible.

Jan. 19, 2009.

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Comments

Ted Sampanes says

April 10, 2009 at 01:22 pm

I've heard a lot about reverse compounding re mortgage pay off. What are your thoughts? Plus or minus. Is it a good idea? We owe $165,000, 10 yrs left on a 15 yr mortgage. Home is worth $450,000~$500,000.