Why Should I Refinance?
The topmost reason why homeowners
refinance their home equity loans is to cut down on costs every
month. However, many times people do not take the time to do
some simple math which would reveal any savings to be had.
Many times there is no money to be saved in the first place, thus
making refinancing a fruitless pursuit.
The bulk of savings that comes from
home equity loan refinancing is based on the cost of the loan in
conjunction with how long of a duration you will be living in your
The following sums up what you should consider
when deciding to refinance:
Costs: Sit down and brainstorm all
the possible costs you will incur. They should include
application fees, attorney & appraisal fees, underwriting, survey &
recording fees, insurance fees, credit report fees, and most of all
- title insurance.
Monthly Savings: This is simply
calculating the difference between your current home equity loan
monthly payment and the monthly payment you would be making after
Tax Cost: This is calculated by
multiplying the sum of your state and federal taxes by your newly
calculated monthly savings.
Net Savings: This is calculated by
subtracting your new tax cost from your new monthly savings.
Break-Even Point: This is the time in
which your refinancing costs will be equaled by your savings.
To calculate it, divide your new
total costs by your new net savings. This value will reflect
the number of months it will take to pay off the refinancing costs.
Hidden costs: Remember to look for
hidden costs on the home equity loan contract. Sometimes
they contain prepayment penalties, which need to be factored in as
The only sure way of obtaining precise savings figures is to fill
out a loan amortization schedule, which you can access on a mortgage
calculators. The other alternative is to sit down with a
broker or lender who is willing to calculate the figures for you.
If you have decided to refinance,
always try your current home equity loan lender first.
Oftentimes they have retention programs specializing in the offer of
low rate or "no cost" refinancing packages.
Do not stop shopping around for a low
refinancing rate - even after your current lender offers you a nice
package. Start talking to people and collecting good
references. Use the offer of your current lender as a
bargaining tool with other lenders. Always drive a hard
bargain - even if you have to walk out the door, remember that the
lender will likely call you back to meet your demands.
Home Equity Loan Refinancing Guide