Today's low mortgage rates make refinancing home loans an attractive prospect, but can you refinance a home equity loan? There are two options for refinancing a home equity loan. You can refinance your home loan with enough extra cash out to pay off your home equity loan or you can apply for another home equity loan for enough to pay off your existing home equity loan. Lender requirements may vary, but you'll need to meet lender credit requirements and have enough home equity to be approved for either option.
Home Equity Refinance: Option 1
Your home equity loan has a rate higher than today's interest rates and you want to roll your home equity loan into a new home mortgage. This option allows you to consolidate two house payments into one new mortgage payment with a lower mortgage rate. While it's easy to estimate potential savings using online mortgage calculators, it's important to factor in the cost of refinancing your current home loan, which includes paying closing costs, appraisal fees and lender charges.
Home Equity Refinance: Option 2
Home equity financing options include home equity loans or HELOCs. While convenient, home equity lines of credit carry variable interest rates and a draw period. When the draw period expires, you're required to pay off your home equity line or refinance it. Refinancing a home equity line of credit to a home equity loan can convert your adjustable rate HELOC to a fixed rate second mortgage with fixed payments over a specified repayment period. Refinancing a HELOC to a home equity loan can be a good choice if you prefer stable monthly payments, but you may pay a higher fixed rate for a home equity loan than you're paying on your HELOC. It's important to know the terms the HELOC so you can make accurate comparisons between your present and prospective home equity financing terms. Keep in mind that a home equity loan does not provide access to cash on an as-needed basis. You'll pay interest on the full amount of the home equity loan, whereas a home equity line of credit allows you to withdraw and pay interest on funds as needed.
Home Equity Refinance: Option 3
You already have a home equity loan, but need more cash for home improvements, college tuition or debt consolidation. Depending on your home equity and credit standing, you may qualify to refinance your existing home equity loan along with cash for meeting planned or emergency expenses. Requesting online quotes for home equity loans from multiple lenders helps with determining your options and provides a starting point for comparing loan terms and costs.
Before deciding how to refinance a home equity loan, it's important to weigh risks and benefits. The Federal Trade Commission encourages consumers to understand the risks of borrowing loans secured by your home. A home equity loan or line of credit is secured by your home, which means that the lender can potentially foreclose if you miss payments on your home equity loan or line of credit. It's also possible for a home equity lender to foreclose if it advances payments to your first mortgage lender. Protect your investment in your home by borrowing to pay only essential expenses; the less you owe on your mortgage and home equity financing, the lower the risk of foreclosure if your financial circumstances change.