There are many reasons that people get home equity loans. Home equity loans can be used for home improvements, debt consolidation, college tuition, a child’s wedding, or for other purposes. However, after a while a homeowner might want to refinance to better terms. The good news is that, in most cases, it’s possible to refinance a home equity loan – as long as you have the required equity in your home.
If the amount owed on all your home loans and lines of credit is more than your home is worth, you probably won’t be able to refinance a home equity loan. Most lenders prefer that you have a loan-to-value ratio of 80% or less in order to refinance. While there are programs which can help you avoid that requirement for your first mortgage, refinancing a home equity loan when you have little equity in your home is difficult.
If you are looking to refinance a home equity loan, consider the following good reasons to do so:
·Pay a lower interest rate: If you are unhappy with your current interest rate, consider refinancing your home equity loan so that you have a lower rate. The potential savings for a lower interest rate run in the hundreds of dollars.
·Lock in a fixed rate: Many home equity loans and lines of credit come with variable rates. If you are concerned that interest rates will rise soon, lock in a lower fixed rate now to keep your payments predictable.
·Reduce your loan term: A home equity loan often has a 30-year term. If you want to build equity faster, a shorter-term loan can help. Refinance your 30-year home equity loan to a 20-year or 15-year term, and you could see overall savings while boosting the ownership you have in your home.
Remember, though, that there are some risks associated with home equity loans. If you are required to pay fees, it will take longer to see the benefits of refinancing. A lower monthly payment looks attractive, but you might not actually save any money in the long term if the terms of the loan aren’t favorable to you. Make sure you carefully consider these expenses before refinancing your home equity loan.
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