The Freedom of Refinancing: Your
Refinancing your home equity loan is
a terrific way to free up your hard earned money and build cash
reserves. It can also increase the rate of built-up equity in
your home and reduce the lifetime of your original mortgage.
In laymen's terms, home equity loan
refinancing is another phrase for swapping home equity loans.
The reason for the swap - in the first place - is due to a
difference in home equity loan rates. When rates drop many
homeowners refinance so they can obtain the lower rate and pay less
interest than what they did in the past with a higher rate.
Another saving, as a result of home
equity loan refinancing, is lowered private mortgage insurance (PMI)
costs. There is a good chance that your mortgage lender provided you
with PMI, especially if you put up more than a 20% down payment.
Assuming your refinanced home equity loan is no more than 80% of
your homes current appraised value, you can be exempt from paying
high monthly PMI premiums. Make sure you inquire about this
with you lender.
You should also consider refinancing
from a fixed rate to an
adjustable rate mortgage (ARM). This option can free up even
more of your monthly wages. This is an especially smart idea
if you are planning to move soon. With an ARM lower than a
fixed rate mortgage, you can cut costs in the final months leading
up to your move - and possibly enabling you to put up a greater down
payment towards a new home.
If you have an ARM that is steadily
increasing in cost, you should contemplate the option of changing to
a lower priced ARM or a lower fixed rate mortgage. Even if the
fixed rate is higher than your current ARM, it may be cheaper in the
long run - especially if the ARM keeps progressively increasing.
The best way to foresee this is by staying informed and being aware
of the current trends in the refinancing world.
Shortening the term of your home
equity loan is a sure way to drastically build equity in your home.
Although you will incur increased monthly payments, you will save a
gorge of money over the lifetime of the loan. Your chief
concern should only be if you can actually afford to make the higher
With an increased appreciation of your home, your equity is good
game to be cashed out - especially if you need to free up money.
All you have to do is refinance for a larger home equity loan, which
will allow you to cash out your previously built up equity.
Depending on how much equity you use and what your new home equity
loan rate is, it is possible to obtain even lower monthly
installments on your new mortgage. Or, you can shorten the
newly refinanced loan if you want to reacquire your equity back even
The last home equity loan refinancing option you should consider is
more of a gamble than the others. There are loans in existence
called "automatic refinance mortgages" or "reverse rate mortgages" -
Which guarantees your home equity loan rate to fall up to 1.5 %
lower than your initial interest rate.
Reverse rate mortgages are designed to offer B credit individuals an
opportunity to build their credit history. The idea is to
steadily decrease the home equity loan rate over a time period -
usually a few years - until it hits a predetermined bottom and turns
into a fixed rate. The gamble, however, is that these
mortgages initially start with a higher rate than typical home
equity loans. So, when the rate of the loan does hit bottom,
there is no guarantee it will be lower than what the actual current
home equity loan rates are.
Home Equity Loan Refinancing Guide