Refinancing a home equity loan can be a great way to lower your monthly payments, fund a new project, or change your loan term.
In this blog, we’ll go over a few reasons for refinancing your home equity loan, how to refinance, and some things to consider before starting the process.
How Does a Home Equity Loan Work?
A home equity loan is a secured loan that allows you to borrow against your home equity, which is the difference between what you owe on your home and its market value. When approved for a home equity loan, you receive your funds in a lump sum, upfront, and at a fixed interest rate.
The interest rate you’re approved for depends on your personal financial history—which includes factors like your credit score, payment history, loan amount, and income. You’ll then repay your loan over a fixed repayment term for the life of the loan or until you’ve paid the mortgage loan balance in full.
Reasons to Refinance a Home Equity Loan
Many factors could have changed for the better in the years since you took out your original home equity loan. Therefore, refinancing your home equity loan could help you:
Lower Your Monthly Payment
Refinancing into a loan with a lower interest rate would reduce your monthly payment.
Take More Cash Out of Your Home
If you need more cash for repairs, projects, or renovations then refinancing to a higher-balance loan can help you get there! But don’t forget this will also increase your payments.
Change Your Loan Term
You can also use a refinance to switch the term length of your loan. Switching to a longer-term loan would lower your monthly payments and allow you to pay off the loan over a lengthier period of time. Or, if you want to pay off your loan faster, you can refinance into a shorter-term loan—but keep in mind your monthly payments will be higher in this scenario.
What to Consider Before Refinancing
To make the best decision about what type of refinancing you should pursue, there are a few things to assess in advance so that you can evaluate whether or not refinancing is even a good idea for you.
If you’re looking to access more cash, you’ll need to determine how much equity you currently have in your home. When considering this, determine what you could realistically afford (both upfront and monthly) in order to have a solid handle on your home equity loan refinancing goals.
Also, be mindful of any fees you might incur in the refinancing process (such as a closing cost fee) and set aside a portion of your funds to prepare for this.
Qualifying to Refinance a Home Equity Loan
The process to refinance a home equity loan isn’t much different from applying for a mortgage, so be prepared for the lender to evaluate your income, expenses, debts, and current home value.
At Greater Texas Credit Union, we’ll need a few additional items including your homeowner’s insurance policy, deed of trust, and an up-to-date tax statement.
Having a strong credit score and repayment history will ensure you receive the most competitive interest rate. You may still qualify for refinancing your home equity loan with a lower score, but you’ll pay a higher interest rate and may have to borrow less than you could with a higher score.
If you’re curious about the overall timing of getting and receiving your home equity loan, you can read more about that process here!
Refinance With Us
Refinancing your home equity loan can come with more affordable monthly payments, lower interest rates, and more flexibility with borrowing the equity you’ve earned! Greater Texas Credit Union offers a range of terms from 5, 10, 15, and 20 years. Read more about our home equity loan benefits and competitive rates—and apply by clicking below!