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Refinancing your Home Equity Loan |
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Bill Hampel, chief economist for the Credit Union National Association, Washington DC describes refinancing as surges in fits and starts with rates typically falling at least a point.
How to Get the Best Bet on Refinancing Refinancing is not recommended if you plan to sell your home in a year. With closing costs and other fees, it's crucial to know whether refinancing costs are offset by lower monthly payments. Refinancing also avoids a balloon payment. Combine your first mortgage and home equity loan or credit line for one fixed-term payment and avoid a huge lump sum payment. Using equity from refinancing to pay off credit card debt makes a bad deal. In transferring $15,000 in credit cards to a new 30-year first mortgage, monthly payments may decrease but due to the long term of the loan, it costs more to pay off revolving credit card. Better than that is to take 10 years to pay off the charge cards which saves you 20 years' worth of additional interest. Consider also how long it will take to break even. With rRefinancing costs of $2,500 with payments $100 lower each month, you need 25 months to break even. Apart from lower interest rate, refinancing also offers the advantage of converting all or part of your equity loan to a fixed-rate installment loan. It also enables you to acquire a shorter-term loan to build new equity more quickly. In refinancing at lower rates, it is common for homeowners to take cash from the equity for a remodeling project or kids' ollege education. It's Not for Everyone, Though Refinancing can be futile in the following situations: You're a number of years into your loan already. When you're 10 years into a 30-year mortgage, refinancing a new 30-year loan is pointless as it would mean paying off for 40 years. Keeping mortgage on the books for this long can boost overall interest for a home. Your credit is worse now than when you originally borrowed. Credit score falls with late mortgage, credit card or auto payments since you have bought your home. Since you no longer qualify for the best rates, refinancing may boost payments and interest instead of lowering them. Equity loans and lines of credit cost less. Conditions in the interest rate market, equity loan and line of credit may lower rates more than first mortgage rates. This is due to exceptionally low prime rates. Those who don't require much money and don't plan to have loans outstanding for long can be lured by no closing costs of a second mortgage. Conclusion A mortgage statement with big amounts could include assorted expenses, including over-the-limit fees. Refinancing your debt into a home equity loan doesn't increase it but merely moves the debt. |
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