How to Refinance a Home Equity Loan
You can definitely benefit if you refinance a home equity loan, but there are also certain situations in which refinancing your home equity loan would not be profitable, and therefore it is important that you have all bases covered and all the necessary information before getting too ahead of yourself and going through with something like this.
What is a Home Equity Loan?
A home equity loan is a type of loan in which the borrower of the loan uses the equity in their home as collateral. These loans are particularly useful if the borrower needs to pay off other bills, put money towards an investment, or pay for their child's college education, for instance.
A home equity loan is often referred to as a second mortgage, because it is secured against the value of a property, as a mortgage is.
There are two different types of home equity loans that you can choose from: closed end home equity loans and open end home equity loans. With a closed end home equity loan you receive a lump sum at the end of the time of closing and are not able to borrow any further, whereas with an open end home equity loan you are offered a revolving credit loan where you can choose when and how often to borrow against the equity in the property.
Refinance a Home Equity Loan
There are basically two major things that you want to think about when you are considering refinancing a home equity loan. The first is how much you will save in lower monthly payments if you do go ahead and refinance a home equity loan, and the second is how much it is going to cost you to refinance the loan in terms of closing costs.
You should know how long you are planning to stay in the home before you refinance a home equity loan, and if you are not going to be staying long enough to be able to make up for the closing costs, for instance if you are planning in moving into a new home in a few years or less, then refinancing may not be the best option for you here.
When you are making a decision like this you really have to take the time to consider if it is going to be worth it, and if you get even the smallest rate cut in your mortgage it can be more than worth it, especially if you are planning on staying in the home long-term.
