Q: When should I refinance?
A: Refinancing is applicable to
you in several instances. If home equity loan rates have
dropped considerably lower than the rate at which you originally
took your home equity loan, then you should consider refinancing.
Also, if you later find that either an adjustable rate or fixed rate
mortgage is better suited to your current needs, you should
refinance and switch to the type of rate you prefer. Other
scenarios when refinancing is viable are if you simply want to use
the built up equity in your home or if you just want to reduce the
payment period on your home equity loan.
Nowadays, since "no-cost" refinancing
is available, the old rule that said to only refinance when the rate
was down two points is no longer applicable. Remember,
however, the term "no-cost" can be misleading because all it means
is that you will not have to pay fees during closing. The
closing fees still exist - They are just added into the loan itself,
or, they are mixed into the home equity loan rate - thus making it
higher than normal.
The overall determining factor of
whether to refinance or not is in the time period it takes to regain
your costs. In other words, calculate what you will be saving per
month and compare that to the costs of refinancing your home equity
loan. How many months will it take until you break even?
Do you plan to still be residing in your home for that long or is it
too far off to tell? Make sure you answer these questions as
honestly and unbiased as possible. If you do determine that
you are planning to reside in your current home for a definite
length of time, home equity loan refinancing is the smart choice.
Home Equity Loan Refinancing Guide