Mortgage or HELOC?

[fxprogljr]

I owned a home free and clear but needed some cash so I took out a mortgage and now am unsure how to answer TurboTax questions.  Is this loan a mortgage that I refinanced or a Home equity line of credit?  and Is there a difference?

[HelenaC · Accepted solution]

Yes, there is a difference. 

• HELOC stands for home equity line of credit, or simply "home equity line." It is a loan set up as a line of credit for some maximum draw, rather than for a fixed dollar amount.

• Refinancing works by giving a homeowner access to a new mortgage loan which replaces its existing one. The details of the new mortgage loan can be customized by the homeowner, include the new loan’s mortgage rate, loan length in years, and amount borrowed. Refinances can be used to reduce a homeowner’s monthly mortgage payment; to take cash out for home improvements; and, to cancel mortgage insurance premiums, among other uses.

For example, using a standard mortgage (like a refinance) you might borrow $150,000, which would be paid out in its entirety at closing. Using a HELOC instead, you receive the lender’s promise to advance you up to $150,000, in an amount and at a time of your choosing. You can draw on the line by writing a check, using a special credit card, or in other ways.

Related information:

• Can I deduct interest on a home equity loan or a HELOC?
• What kinds of refinancing costs can I deduct?

[fxprogljr]

thanks....so, if there was no existing mortgage, is this new mortgage still considered a refinance?

[HelenaC]

Yes, if your house is paid off, a refinance can be to take cash out. Did the bank give you a fixed monthly amount to pay (mortgage loan refinance) or do you just have to pay the interest every month (HELOC)? You can check your paper work that you got from the bank. It should state whether it's a HELOC. If you are still unsure, call the bank.

[fxprogljr]

thanks much again....I have a 30 year mortgage with a fixed payment each month

[HelenaC]

ok. It a refinanced mortgage loan. You're very welcome. Thank you for using TurboTax. We really appreciate it!