Getting a home equity loan is a great way to secure funding to finance miscellaneous needs for your life. But, can you refinance a home equity loan? Yes, you can. The question you want to ask yourself is if you should and if the new terms will be beneficial to your financial state overall.
Keep reading for details on why you might choose to refinance a home equity loan along with implications to keep in mind associated with this choice.
Reasons To Refinance A Home Equity Loan
There are two primary reasons why you may want to refinance a home equity loan. One is to secure better loan terms, and the second is to get more cash out of your home.
Why you want better terms
Better loan terms might mean something different to everyone depending on their current loan and needs. Here are some reasons you might want to change your loan terms.
If you find that you have to pay a lump sum equal to the outstanding principal balance at the end of your loan period, also known as a balloon payment, you might opt to refinance your loan instead. Doing so allows you to forego making one large payment at a time.
Fixed-Rate vs. Variable-Rate
If you decide that you want your interest rate to remain constant throughout your loan term, you might opt for a fixed-rate loan instead of a variable-rate loan. In doing so, your monthly loan amount will be predictable, which makes it easier for you to budget for the expense.
If extending or reducing your loan period works best, you might choose to refinance your home equity loan to change this term.
If you want to secure a lower interest rate, refinancing your home equity loan is your best option.
If you want to lower your monthly payment, your refinancing company can let you know how you can adjust your loan terms to make that happen.
Why you want to get more cash out of your home
Another reason you might choose to refinance your home equity loan is to get more cash out of your property. If you find that your home has accumulated additional equity since you took out your original home equity loan, you can access that money by going through the refinance process again.
3 Implications Of Refinancing A Home Equity Loan
While there are many reasons why you might want to refinance a home equity loan, there are also some factors to be cautious about. Keep these three implications in mind when considering refinancing your home equity loan.
You will need to qualify again
When you refinance a home equity loan, you will have to go through the same process you went through when you originally refinanced it. Your lender will look at various factors, including your income, expenses, credit score, the equity in your home, and the market rate of your home to decide whether you qualify and, if so, with what terms.
It will cost you
Just as you were responsible for paying closing costs and other fees when you originally refinanced your home equity loan, you will have to do that again. The amount of your home equity loan, along with other pertinent financial data, will determine how the amount you pay in fees.
You want to consider whether the cost to refinance makes financial sense for you. If the numbers don’t add up, you might want to reconsider.
You take a risk
When you refinance your home equity loan, your property will still be used as collateral as with your original refinance. So, in case you’re unable to meet the terms as agreed upon, your home could be at risk of foreclosure by the lender.
Also, if the market value of your home suddenly decreases, you could find that you owe more on your home between your mortgage and the home equity loan than your home is worth. This could make it difficult for you when it’s time to sell your home or refinance your mortgage again.
Are You Ready To Refinance Your Home Equity Loan?
Refinancing a home equity loan has many significant advantages that can help you improve your loan terms and access more of the equity in your home. As long as you’re financially prepared to go through the refinancing process again, and you’re aware of the possible implications of doing so, you can improve your equity loan status.
If you’re considering a home equity loan, we invite you to learn more about home equity loan financing with us.