What is the difference between a refinancing mortgage and a home equity line of credit?

Having a tangible asset, usually real estate, translates in most cases into immediate availability of money to meet any eventuality that may arise, either to cover emergencies, improvements or repairs. There is a method to translate your real estate into cash and it is through mortgages; these represent a real right of guarantee and are constituted to ensure that the credit acquired by the borrower is paid in full within the established terms.

Mortgage Refinancing

This mortgage method allows the user the possibility of reducing the monthly mortgage payment, in addition to restructuring its conditions to adapt them to the needs of the client who requests it. In other words, if the client already has a mortgage on his property, by refinancing it with a new loan he can cancel his current mortgage and pay it under his terms with a different contract on the same property.

Mortgage-backed loans

Also called “home equity loans,” these loans consist of the customer borrowing against a property that he or she owns as collateral. These loans are ideal for borrowers to obtain quick and large amounts of money for a specific purpose. If the client in question defaults on the loan contract, he/she will be obliged to assign his/her rights to the lending bank, and the lending bank can force the sale of the property.

Both methods are quite similar since they are a way for homeowners to obtain money simply and immediately; however, their essential differences lie in the fact that refinancing involves mortgaging a property that already has a mortgage to adopt the new contract to the client’s current reality, while mortgage loans are loans that the client requests from the bank, leaving the property as collateral, and are governed by the guidelines agreed upon with the lender.

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