Refinance Your Mortgage or Home Equity Loan

Refinancing your home equity loan can help you save cash through lower rates or lower payments. To get the most out of your home equity, use your second mortgage as part of your overall financial plan. That may mean consolidating debt, paying for home repairs, or investing in a college education.

Getting The Most Out Of A Home Equity Loan

Home equity loans offer low rate credit, lower than almost any other type of financing. Your home’s equity is also your investment, and ideally should increase in value over time.

When you choose to borrow against your home’s value, make sure that you are getting the most out of the deal. Trading in high interest credit card debt for a low interest second mortgage financially makes sense. So does increasing your property’s value through home repairs and upgrades.

Make sure that you also take advantage of any tax benefits that your home equity loan qualifies for. In most cases, paid interest can be deducted on your IRS return.

Refinancing For Increased Savings

Refinancing your home equity loan can further increase your savings through reduce rates. Most home equity loans have adjustable rates, which are susceptible to rate increases. Refinancing your loan can help you lock in lower rates and select better terms with fewer annual fees.

You can also reduce your interest rates and payments by picking a shorter loan period. Choosing to pay your loan every two weeks can also save you hundreds.

Another option is to combine both your first and second mortgage through a refinance. Merging the two loans into one saves you money on both application fees and interest rates.

Strategies To Find Refinancing

To get the best deal on your refinancing, take some time to research loan offers. You can get loan quotes online without hurting your credit score. By providing lending companies with some basic information, you get numbers that you can base your refinance decisions on.

Take a look at a number of available loan terms. For example, compare the savings of refinancing both of your home loans and just your home equity loan. You can also adjust the payment period and rate terms. With this added information, you can be sure you are getting every advantage from your home’s value.

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Refinance Options - Fixed Rate vs. Adjustable Rate Mortgages

When is a good time to refinance your mortgage to a fixed rate loan?

The very best time to refinance is when the interest rates are at an all time low. If you’re waiting for this option, you’ll want to follow the market and keep an eye on what direction our financial leaders are heading. Usually it’s based on the status of our economy and there is a lot of discussion about it before the prime interest rate moves in either direction. Keep your ear to the ground.

It’s also a good idea to refinance to a fixed rate if you plan on living in your home for the life of the loan. Ninety percent (90%) of our population moves to a new or different home for one reason or another within 5-7 years. But, there are those who stay put and want the stability of steady payments. It makes financial planning much easier to know for certain how much your expenses are from month to month. If you are one of these people, your best refinance option is a fixed rate mortgage.

By all means… if you can’t sleep at night worrying about the ups and downs of your mortgage payment, then contact a good mortgage broker and start the refinance process right away. It’s not worth the stress!

When is a good time to consider an ARM?

When you DON’T qualify for the purchase of a home or refinance to a fixed rate mortgage. Sometimes this is the only way to qualify for a purchase due to credit history, debt to income ratio or not enough income. Later on you can refinance into a fixed rate loan if the ARM loan makes you nervous.

When your monthly payment, after the refinance, will be significantly less than the total of your current payment plus the payments of all your credit cards and loans. If you’re in a home for 5-7 years and you are paying 10, 15 or even 20% interest rate on consumer debts, refinance your mortgage and use your equity to pay off your high interest debts. This will make a significant impact on your monthly cash flow and may give you the necessary breathing room you need.

When you DON’T plan on staying in your home for more than 5-7 years due to family size increasing, kids going off to college, job relocation, etc. Why pay for a higher fixed rate long term mortgage if you are only going to move or refinance in a few years anyway.

Homeowners who refinance with long term fixed rates pay between 1.00-2.00% higher than those who refinance with an ARM. That may not seem like a lot but when you have a $250,000 mortgage, it makes a BIG difference in your payment.

When you CAN anticipate increases in your income due to promotions and raises. Some employees receive a raise each year based on a percentage of their current income and can come relatively close to determining what their raise will be. If you’re due for and expect to get a promotion, you’ll probably know ahead of time what that new position will pay you. These are perfect opportunities to consider a refinance.

When you ARE comfortable with moderate adjustments in your mortgage payment. Some people are just more relaxed about finances than others. Most often this is due to not having to worry about their basic survival needs and having a steady, generous income.

What it all boils down to is level of risk. If you can’t sleep at night unless you know your mortgage payment is $XXX.00 every month, then a long term fixed rate mortgage is the best option for you.

If you can sleep at night taking some calculated risks, other options may be available to you.

About the Author
This article is Copyright ? 2006, Heather Colman. Find more refinance resources at aboutrefinancemortgage.info.

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Refinance Options - Fixed Rate vs. Adjustable Rate Mortgages