Is It Possible to Refinance a Home Equity Loan?
Updated: Jan 16
Many homeowners take home equity loans for various reasons and understandably so, given the current financial times that we are in. The reasons may include but are not limited to making home improvements, catering for medical bills, paying for a child’s college fees or even buying a second home.
Question is, in the event that the rate falls in the future, can you refinance the home equity loan? Well, the answer to this question in most cases is a resounding yes. You however should have a good reason to take this step as there are some risks that are involved. Bearing the risks will be easier if you have a good enough reason. These may include, low interest rates, obtaining a balloon payment, getting more cash from the equity, getting a loan (short term) to be able to build up on new equity fast. Also, if an opportunity presents itself to convert the adjustable rate loan installment into a fixed one, you best jump on the opportunity.
You should however bear in mind that refinancing home equity loan does not guarantee you cash savings at any level – refinancing at its basics involves closing costs as well as other fees. You will need to weigh and determine if the lower monthly installments offset the cost.
You will also have to calculate the duration it will take before the savings you have on your monthly installments outweigh the fees.
That said, you should be aware of the risks that are involved. First and foremost, in the event that you do not make any payments, you fall under the risk of losing your home. Also, in the event that your home’s resale value reduces, you may owe more than it is worth and may not be able to resell it or even refinance your very first mortgage let alone home equity loan.
Note that if you already owe more than the resale value of your home, you may not be in a position to refinance home equity loan.