Refinancing Home Equity Loans - is it a Good Idea?
If you already have a home equity loan and you are contemplating refinancing the loan there are two items you want to think about. After the numbers have been crunched, what is the amount of money you will save due to lowering your monthly payment and find out how much money you will have to pay to cover the closing costs. You have probably seen advertisements form banks and lenders stating that they will refinance your loan and they will offer you low cost refinancing and some will eliminate the closing costs associated with refinancing loans. These sound like great offers and sometimes they are worth accepting but be careful because lenders will often provide you with an interest rate that is a little higher than you would ordinarily receive in order to compensate for the loss of income that occurs due to lowering or eliminating closing costs.
Some companies will compensate for this loss of income by adding on some other types of costs to your loan. Sometimes refinanced home loans that include closing costs will actually save you money over the long term due to having a slightly lower interest rate. Learn about all the possible associated costs of refinancing your home equity loan.
Does Refinancing Make Good Financial Sense?
Most mortgage experts suggest that in order to make the refinancing of a home equity loan a good deal for homeowners the interest rate placed in the refinanced loan should be about two percentage points lower than the interest rate in the existing home equity loan if homeowners are considering refinancing a home equity loan. If you might be moving out of your house in a few years then the amount of money you will save from the reduced monthly payment by refinancing may not cover the cost of the loan and thus refinancing your home equity loan might not be justifiable.
Once you have determined the actual monthly savings you will receive as a result of refinancing your home equity loan, you can easily figure out how many months it will take with the monthly savings to pay off the closing costs. If it will take you four years to pay off the closing costs with the monthly savings from refinancing and you might be moving out of your house in three years, refinancing your loan is not a good idea. Refinancing your home equity loan can save you money but crunch the numbers and shop around to find the best deal.
