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Refinancing your home equity loan can lower your monthly payments - thereby freeing up cash for other uses - and reduce the amount of time it will take you to pay off your loan. A good time to refinance is when interest rates drop below the rate of your current loan. The larger the difference between your current loan's interest rate and that of the new loan, the more money you will save, and the faster you will recoup your refinancing charges.

Typically, refinancing a home involves the same steps and fees that were involved in obtaining the original loan. In some cases, you may be able to negotiate with the lender to get the refinancing fees waived. Beware of lenders who advertise "no-costs" refinancing, as it will usually be at the expense of a higher interest rate.

Whether you decide to refinance or not will usually depend on two factors: how much money you will save on interest rates, and how long it will take you to recoup refinancing costs. For example, if refinancing costs you $3,000, and your monthly savings are $150, it will take you 20 months to break even. If you are not planning to stay in your house that long, it wouldn't make sense to refinance.

Other possible advantages of refinancing your home equity loan include:

• The opportunity to convert your volatile adjustable-rate loan to a steady and reliable fixed-rate loan, and to change to a shorter term loan so you can build equity in your home more quickly
• You can take the cash from the equity you've acquired and use it towards financing big expenses such as paying for college tuition, medical bills, or to cover renovation costs
• Can be a way to avoid balloon payments if you combine your first mortgage and the home equity loan or credit line to get one fixed-rate payment

Be careful however, if your reason for refinancing is to pay off large credit card debts. By transferring your debt to your home equity loan, you may end up with lower monthly payments, but it will cost you more in the long run because of the additional interest due to the lengthy loan term.

 

 

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