Refinancing Equity Loans
What exactly is an equity loan?
Your home's equity is defined as the difference between a home's value and the mortgage remaining on the home. So, if your home has an appraised value of $300,000, and you have an outstanding mortgage balance of $200,000, then your home has $100,000 worth of equity. (Most lenders will not offer 100% of your home's equity, rather between 80% - 90%) Your home equity loan is basically a way of using the value of your home's equity to borrow money.
What does it mean to refinance your equity loan?
Refinancing is basically just the process of paying off 1 loan with the proceeds of a second loan. (Only done for the purpose of saving money) If you choose to refinance an equity loan, it generally means that interest rates are lower, and that you've found a lender who can offer you an equity loan that costs you less than your current loan. Mortgage rate calculators can help mortgagees decipher whether or not a lowered interest rate and new equity loan could save them money in the long-run. If you don't calculate the impact of a new loan to the 'nth degree' before signing, you might find that the fees associated with the origination of the loan, the credit check and the appraisal costs might outweigh the savings produced by the lowered interest rate. Basically, before you sign anything, you should make sure that you are indeed saving money.
On a side-note, (For those simply researching equity loans) refinancing the original mortgage might be the smarter option than pursuing a home equity loan. A home equity loan is without-a-doubt the quickest way to go about freeing up needed finances, however refinancing could be the better choice in any of the following circumstances:
- Interest rates are greater than or equal to 2% less than what you are contracted to.
- Interest rates are 1% - 2% less than what you are contracted to, but you have a fixed long term contract.
- You feel that you would be able to pay off the same loan in substantially less time making the same payments.
Learn about how ( MORTGAGE INTEREST RATES ) could signal a time to refinance
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