Looking for a Lower Rate? Consider Home Equity Loan Refinancing

Home equity loan refinancing allows you to change the terms of your home equity loan. You can use it to get lower interest rates, increase the repayment period and generally make it easier for you to repay your home equity loan. However, it can also make your finances worse, trapping you into terms that place you under greater financial burden than before. That is why, if you decide to proceed with refinancing on your home equity loan, you must do it carefully and pay attention to all the legal paperwork, every step of the way.

To Refinance or Not to Refinance

While refinancing your equity loan has it's benefits, you may be able to save more money if you refinance on your first mortgage and including the amount you still owe on your home equity loan. Refinancing your first mortgage may allow you to significantly reduce your monthly interest payments, so much so that you will save you more money than refinancing on your home equity loan would.

To figure out whether refinancing on your home equity loan is preferable to refinancing on your first mortgage, compare the rates carefully. Keep in mind that if your first mortgage has variable interest rates after refinancing, whatever savings you may have gotten for yourself will be negated should the interest rates go up in response to market conditions. This isn't usually an issue with home equity loans, which tend to have fixed interest rates.

Your Credit and Home Equity Loan Refinancing

Whether your home equity loan has a fixed or variable interest rate, your lender will set a starting interest rate based (in part) in your credit score. There is always a chance that your credit score may have gone down since you took out your original home equity loan. If you have suffered through financial difficulties in recent past, you may be better off holding off on refinancing until you are on better financial footing.

Home Equity Loan Refinancing and Your Lender

If you decide that refinancing is worth trying and that you stand a good chance of getting better terms out of it, check with your lender to see if it will allow you to refinance on your home equity loan. Since you owe your lender money, it has the ultimate say in the matter. If it does not allow you to refinance, there is nothing you can really do about it. If it does, you can choose between refinancing with your current lender or with another lender.

Your Refinancing Options

Refinancing with your current lender has a couple of advantages. It has done business with you before, which creates a certain level of comfort and trust. Most lenders are more comfortable with doing business with existing customers than with someone they don't know. They already have your home equity loan paperwork, which will save you time and money.

If you decide to go with another lender, you may be able to get better terms - lower interest rates, longer repayment period, etc. However, going with another lender also increases risk. You may not know much about your prospective new lenders, and you are less likely to be aware of any history of legally dubious behavior they may have.