The Day I Almost Made a $50,000 Mistake With My House

Look, I’m just gonna be straight with you – I had no clue what I was doing when I first started looking into borrowing money against my house. Like, absolutely zero idea. And I almost made a really expensive mistake because I didn’t understand the difference between certain loan options.

It started when our AC unit died in July. Not just died – like completely gave up. The repair guy came out, looked at it for about five minutes, and said yeah, this thing is done. Then he hit me with the estimate for a new system: $12,000. Plus our roof was getting pretty rough, and the roofer said we needed to replace it soon – another $18,000. So we’re looking at $30,000 minimum, and honestly we didn’t have that kind of cash just sitting around.

But we did have equity in our house. We’d been paying the mortgage for about nine years, and the neighborhood had gotten pretty popular. Houses were selling for way more than when we bought. So I figured, okay, we can borrow against the house somehow. That’s when I started researching and came across this whole home equity loan vs refinance thing, and man, it was confusing as heck at first.

What I Thought These Things Were

Before I talked to anyone official, I did what everyone does – I Googled it. Read a bunch of articles that honestly just made me more confused. Some people were saying refinance is always better. Other people said home equity loans are the way to go. Nobody was really explaining it in regular person language.

I thought refinancing just meant getting a better interest rate on your mortgage. Like, the bank would just lower your rate and boom, you save money. I didn’t realize you could actually take cash out when you refinance. That was news to me. And I definitely didn’t understand that refinancing meant starting completely over with a new mortgage.

My brother-in-law Steve told me I should definitely refinance because rates were lower than when we bought our house. He refinanced his place and saved like $200 a month, so he was all about it. But Steve bought his house in 2018 when rates were higher, and we bought ours in 2020 when rates were super low. That detail matters a lot, which I didn’t realize until later.

The home equity loan vs refinance choice isn’t about which has a lower payment next month – it’s about which costs less over ten or twenty years.

Going to the Bank and Learning Stuff

I made an appointment at our bank to talk about options. The loan officer – his name was Marcus – asked me what my current mortgage rate was. I honestly didn’t know off the top of my head. I had to log into our account on my phone right there in his office to check. It was 3.125%. Marcus actually whistled when I told him that. He said current rates were around 6.8% for mortgages.

Then he asked how much we owed and what the house was worth. We owed about $185,000 still, and he pulled up some system that estimated our house at $340,000. That meant we had around $155,000 in equity, which honestly shocked me. I knew we had some but didn’t think it was that much.

Marcus explained the home equity loan vs refinance decision pretty simply. A home equity loan would be a second mortgage on top of our current one. We’d keep our existing mortgage payment – same rate, same everything – and just add another payment for the new loan. The rate would be higher than our current mortgage, probably around 7.5%, but only on the $30,000 we needed to borrow.

Refinancing would mean getting a brand new mortgage for like $215,000 the $185,000 we owed plus the $30,000 cash we needed. The old mortgage would disappear completely, paid off by the new one. But the new rate would be that 6.8% on the entire amount, not just the cash we were taking out.

When It Finally Clicked

Here’s what made it click for me. With the home equity loan, I’d be paying the higher rate only on $30,000. My original mortgage at 3.125% would stay untouched. With refinancing, I’d be giving up that 3.125% rate and paying 6.8% on $185,000 that I’d already borrowed at the lower rate. Just to get $30,000 in cash.

Marcus ran the numbers for me. Monthly payment with a home equity loan would be my current $1,240 mortgage plus about $285 for the home equity loan. Total of $1,525 per month. With refinancing, my new payment would be around $1,410. So refinancing actually looked cheaper monthly, right?

But then he showed me the total interest over time. By refinancing, I’d pay about $90,000 more in interest over the life of the loan compared to just taking the home equity loan. That’s because I’d be paying that higher rate on my whole mortgage balance, not just the new money. The home equity loan vs refinance comparison suddenly made total sense.

I felt pretty dumb that I almost listened to Steve without checking my own situation. His advice was good for him because his rate was high to begin with. Mine was really low, so a totally different situation.

The Costs Nobody Mentions Upfront

Marcus also told me about closing costs, which I kinda forgot about. Refinancing would cost me between $4,000 and $6,000 in fees – appraisal, title work, origination fees, all that stuff. The home equity loan closing costs were only about $1,800. That’s a few thousand dollars difference right there before I even borrow anything.

Some lenders advertise no closing cost refinancing but Marcus explained they just build it into a higher interest rate. So you’re still paying, just spread out over years instead of upfront. Usually costs you more in the long run.

What I Actually Did

I went with the home equity loan. Yeah, I have two mortgage payments now, which is slightly annoying. But I kept my awesome 3.125% rate on the big loan, and I’m only paying the higher rate on the $30,000 I actually needed. The application took about three weeks to finish. Had to provide pay stubs, tax returns, bank statements. They did an appraisal where a guy came out and looked at the house.

Got the money, fixed the AC and roof. My monthly budget went up by about $285, which we could handle. And I’m not kicking myself for giving up a great mortgage rate just to get some cash.

The home equity loan vs refinance choice isn’t about which has a lower payment next month – it’s about which costs less over ten or twenty years.

When Refinancing Actually Makes Sense

But look, refinancing isn’t always wrong. My neighbor Jenny refinanced last year and saved a ton because her original rate was like 6.5%. She dropped it to 4.2% AND took out cash for a kitchen remodel. That’s the perfect scenario for refinancing – when you’re improving your rate anyway.

The home equity loan vs refinance question really depends on your current rate. If you’ve got a low rate like I did, keep it. If your rate is high and current rates are lower, refinancing makes way more sense.

Also, if you want to change your loan term – like going from 30 years to 15 years – you gotta refinance. Can’t do that with a home equity loan.

My Advice After Going Through This

Check your current mortgage rate before you do anything. That’s the most important number in this whole decision. If it’s really low compared to today’s rates, you probably want a home equity loan. If it’s high, look into refinancing.

Get quotes from a few places. I only talked to my bank at first, but I should’ve shopped around more. Different lenders have different rates and fees.

And don’t just look at the monthly payment. Look at total interest over the whole loan. That’s where the real cost is. The home equity loan vs refinance choice isn’t about which has a lower payment next month – it’s about which costs less over ten or twenty years.

Also, ignore your brother-in-law’s financial advice unless he actually works in finance. Just saying.

Disclaimer

The information provided in this article is based on personal experience and general financial understanding. It is intended for educational and informational purposes only and should not be taken as financial, legal, or mortgage advice.

Every homeowner’s situation is unique, and loan options—such as home equity loans, cash-out refinancing, and mortgage terms—may vary depending on individual credit profiles, lender policies, and current market rates. Readers are strongly encouraged to consult with licensed financial advisors, loan officers, or mortgage professionals before making any borrowing or refinancing decisions.

The author and publisher make no guarantees regarding the accuracy, completeness, or applicability of the information presented and assume no responsibility for any financial losses or decisions made based on this content.