Refinancing Your Home Equity Line of Credit

These days, borrowers use Home Equity Lines of Credit (HELOCs) to assist with all sorts of expenses. Some of the most popular reasons for taking out a HELOC are college tuition, medical expenses, home remodeling, and debt consolidation. Because the interest is tax-deductible, a HELOC can be a very attractive option when you need to borrow money. 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.

Whatever the circumstance were when you took out your HELOC, the time may come when you decide to refinance it. The factors pertaining to why and how you go about refinancing your HELOC will be as individual as you are. 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.

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 HELOC 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 HELOC 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.

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The basics of Home Equity Line of Credit

A home equity line of credit (or HELOC) is a loan with a maximum amount fixed where the collateral is the borrower’s equity in his/her house. Home equity is the difference between the value owed on a home and the value of the worth of the home. This amount of equity established on your home will determine the credit limit you receive on a HELOC. Unlike a home equity loan where an entire sum is advanced at once, HELOC is a line of credit allowing you to withdraw over a period of time, subject to the maximum limit fixed. How does Home Equity Line of Credit work?To be eligible for a HELOC, your payments must be up-to-date and you must have a good credit standing. Since this is a line of credit based on your home equity, you must have a substantial amount of equity standing in your home.  With the open line of credit under HELOC, you can borrow and repay as per your requirements as long as you do not exceed the credit limit. Note that, HELOC comes only with a variable interest rate, which is based on prevailing prime rates. Also, the repayment of this type of line of credit is extremely flexible.  The advantages of Home Equity Line of Credit 1.Unlike home equity loans, HELOC do not require renewal as long as the credit limit is remaining. 2.If your home equity grows, whether by an increase in your property value or a reduction in your mortgage debt, you can ask for your maximum credit limit to be recalculated. 3.The interest on HELOC is tax deductible.4.A HELOC does not attract weary views from creditor or impact your credit ranking negatively as a second mortgage may. Watch out for the following:1.However, since the interest rate on home equity line of credit is variable, keep a tab on the prevailing interest rates.  Even the smallest spike can cause your repayment balances to rise rapidly. 2.Also, since home equity line of credit is secured against your house, any default in repayment can result in foreclosure. Thus, it is advisable to consult a lending professional agent before taking up home equity line of credit.  This type of financing should be considered carefully, and the homeowner must read all the fine print and discuss all fees before securing such a loan, since you could lose your home if you fail to repay the amount borrowed. For more information, you may contact:Allegro Mortgages Corp.