How to Refinance a Home Equity Loan

There are many reasons why someone would want to refinance a home equity loan. One reason could be he needs more cash and that is the easiest way to get it. Secondly, the interest rate he is currently paying might be much higher than the current rates. Or third, maybe he would like to replace his variable rate for a fixed rate. That way he won't have to worry about escalating rates in the future. Whatever the reason, there are a few things he should be thinking about.

Instructions

1

Determine if you would be better off refinancing your first mortgage and including the amount currently outstanding on your home equity loan. An easy way to find out is to determine the fees you would pay if you refinanced your first mortgage, then compare them to the amount you would save. If interest rates are particularly low, you might end up with a reduced monthly payment, even with the addition of the loan from your home equity loan.

2

Make sure your credit rating has not been downgraded since you took out your loan. The interest rate that most lenders charge is first determined by current market conditions. The lender then will assess the borrower's credit rating, and if it is below standards, she will charge a higher rate of interest because of the additional risk. If you have suffered recent financial woes and have less than stellar credit, it's best to wait awhile before renegotiating your loan.

3

Refinance your home equity loan for whatever reason you may have because, in most cases, there will be much lower closing costs than if you were to refinance your first mortgage. Because most lenders sell mortgages they make, they must begin at the beginning when someone wants to refinance a first mortgage. They must have the property appraised, do a title search and other tasks, which are expensive and time-consuming. But that is not the case with home equity loans. In most cases, lenders will rely on estimated values of real estate. This lender needs far fewer safeguards than does a first mortgage lender. In fact, many lenders will charge no fees at all just to get your business.

4

Know the risks involved. If you intend to increase your loan and that requires that you renegotiate your home equity loan, meaning you will be making larger monthly payments, think about this. If you should suffer a job loss or have a debilitating health issue and are unable to make the monthly payments on your loan, since your home is security for the loan, your lender could be forced to foreclose on it. If you are uncertain of your financial future, choose a financing option that does not involve using your house as collateral.