refinance

Can you refinance home equity loans?

Homeowners take out home equity loans for a variety of reasons -- the most common of which are to make home improvements, pay for major expenses such as medical bills or a child's college tuition, or to buy a second home.

But what if rates drop later on? Can you refinance home equity loans? In many cases, the answer is "yes."

Good reasons to refinance a home equity loan include:

  • Lower interest rate.
  • Opportunity to convert equity loan from an adjustable-rate to a fixed-rate installment loan.
  • Obtain shorter-term loan to build new equity more quickly.
  • Avoid balloon payment.
  • Extract more cash from equity.

Remember, though, deciding to refinance home equity loans does not necessarily guarantee a cash savings. Refinancing involves closing costs and other fees. You'll need to weigh whether lower monthly payments offset that cost.

You'll also need to calculate how long it will take before the savings you get on your monthly payments will outweigh the cost of the fees.

Risks of home equity loans

Home equity loans also involve risk. If you don't make the payments, you could lose your home. If your home declines in value, you may owe more than it's worth and not be able to sell it or refinance your first mortgage or home equity loan.

If you already owe more than your home is worth, you probably won't be able to refinance a home equity loan.

When you apply for a loan, the lender will consider:

  • The value of your home.
  • The percentage of your equity that you want to borrow.
  • Your credit score.
  • Your income and employment situation.
  • Other factors of your creditworthiness and property.

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