Home Ownership

Refinance with a home equity loan

Family spending time together after refinancing their home with a home equity loan.

One uses of a home equity loan that is less commonly thought of is refinancing.

You can refinance a home equity loan, or home equity line of credit (HELOC), or first mortgage with a new home equity loan.

When home equity loan rates are comparable to mortgage rates, or when home equity loan rates have decreased since you closed your current home equity loan or HELOC, it might make sense for you to consider refinancing using your existing equity.

If you’re considering a refinance using a home equity loan, you’ll find that some lenders like Discover® Home Loans do not charge origination fees or cash at closing.

Benefits of a refinance with a home equity loan

If you’re looking to refinance your mortgage for to get a better rate, set different loan terms or take cash out of your home equity to use for largeexpenses, a home equity loan refinance might be a good option for you.

As mentioned, some home equity loan lenders don’t require cash at closing. This can represent significant savings that you can put towards paying down the principal amount.

In addition, home equity loans don’t require mortgage insurance and may be up to 100% tax deductible under certain circumstances. Consult a tax advisor to see if you might qualify.

The best time to refinance your mortgage using a home equity loan is when you:

Have significant equity
Obtained your original first or second mortgage when rates were higher
Plan to sell your home in the next few years and can afford the monthly payment
Save more overall by reducing some fixed costs

Discover Home Loans offers mortgage refinance loans from $35,000 to $300,000 under 90% combined loan-to-value (CLTV).. Your maximum loan amount is based on your credit score and CLTV. You can use the monthly payment calculator from Discover to estimate what you might be able to afford.

CLTV equals your home equity loan plus your current mortgage balance divided by your home’s value.

When not to refinance with a home equity loan

Don’t forget to look at all your options. While home equity loans offer potential tax benefits and cost advantages, compare those advantages and home equity loan rates against traditional refinance or cash out refinance rates.

Keep in mind that home equity loans might not be beneficial for small expenses. A 15-year home equity loan can lower your monthly costs but using it to pay for small or short-term expenses will usually mean you pay more interest in the end.