Refinancing Your Home Equity Line of Credit
These days, borrowers use Home Equity Lines of Credit (HELOCs) to assist with all sorts of expenses, given the flexible nature of this home loan product. Some of the most popular reasons for taking out a HELOC are college tuition, medical expenses, home remodeling, medical bills and debt consolidation. Because the interest is tax-deductible, a Home Equity Lines of Credit can be a very attractive option when you need to borrow money, or to just have there for peace of mind and for financial security. You may also take out a HELOC at the same time that you secure your first mortgage when buying a home in order to finance a greater percentage of what the home is worth without the need for mortgage insurance.
If you are seeking lenders to help you refinance your HELOC, you can always apply with our pre-screened refinance lenders to see if there is a loan product that meets your needs.
Whatever the circumstances were when you took out your Home Equity Lines of Credit, the time may come when you decide to refinance your HELOC or refinance a home equity loan. Make sure you have clear goals as to why you are refinancing, and be certain those goals can be met by the program you choose. Typically, people look to refinance a HELOC to lower the rate, but sometimes getting a larger line of credit or even extinguishing the loan all together can be motivations to refinance. Some Home Equity Lines of Credit come with a lump-sum balloon payment that is required at some specified time. Refinancing to avoid having to come up with the lump-sum is another reason to refinance.
One reason to refinance a HELOC, and the first one that comes to most people’s minds, is the interest rate. This may or may not be a good reason depending on a few factors. Your HELOC carries an adjustable rate; therefore if rates go down, so should your payment amount. If rates are steadily rising, however, and especially if they’re expected to continue to rise, refinancing your HELOC back into your first mortgage, or into a closed-end second mortgage with a fixed rate, might make the most sense.
If you originally took out your HELOC for a project or expense such as college tuition or home remodeling and that project is now completed, you may just be looking to refinance your first mortgage and your HELOC into one loan with a low fixed rate to avoid the potential for a rising rate and increasing payments in the future. Having a single loan with a fixed rate offers you the satisfaction of knowing that your payment amount will never go up.
Conversely, if you’ve come to the conclusion that you need to be able to draw more from your Home Equity Lines of Credit than you’d first thought, you can refinance it or, more correctly speaking, take out a new HELOC for a greater value. Keep in mind that you’ll have to pay additional closing costs, and that unless you can start making much larger payments, it will take you longer to pay back the larger Home Equity Lines of Credit amount. You should carefully consider your needs and options before opting for a HELOC with a larger credit line.
When the time comes to refinance your HELOC, don’t hesitate to consult with a financial planner or a loan officer. These professionals can advise you on whether your reasoning is financially sound and about the kind of program you should choose to meet the needs and goals you’re setting for yourself.