Home Equity Resources

Refinancing Your Home Equity Loan - 3 Things to Be Careful Of

December 11th, 2008

Refinancing your home equity loan has its own unique temptations. You may be seduced to go for an extremely low rate loan, only to find high fees are due at signing.

Rolling loans can also suck money out of your checkbook as you keep refinancing your loan. Low monthly payments may also tempt you to delay payments, costing you hundreds. Any of the obstacles can be avoided if you know your terms before refinancing your equity loan.

1. Watch Out For High Refinancing Fees

Fees are how many lenders make their commissions. Promising low rates, they get you to start the application process before disclosing the high fees due at closing.

To avoid this problem, start by getting refi estimates on your home equity loan. Compare the APR and read up on any additional fees. Lenders are required to disclose this information before you complete your loan application.

Broker sites can get you started with several quotes, but don’t be afraid to look at individual lender sites as well. Searching several lenders will help you weed out the outrageous fees.

2. Be Careful Of Rolling Refinance Mortgage Loans

Rolling loans can also zap money from your budget. Most rolling loans start with a low adjustable rate that can be locked in later with a fee. So you end up paying closing costs twice - once at the refi, and then to get a fixed rate.

The temptation is both the initial low rate, and the prospect that rates will drop in the future. Of course this is a gamble. But don’t forget that you are doubling your closing costs and restarting your amortization period.

3. Keep Your Mortgage Refinance Payoff Date in Mind

Another trap is to delay your loan’s payment period. With a lower monthly payment, extending your loan’s terms by a few years seems insignificant. But, those years add hundreds, sometimes thousands to your interest charges.

Before getting talked into a long term loan, look at your own budget. Plan where you want to be in the future and how soon you want out of debt. With your goals firmly in mind, negotiate your terms. You may even find that a shorter term could qualify you for lower rates.

Here are our recommended Home Equity Loan companies online.

Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.

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