Refinancing equity loan has become a very popular option for individuals who setbacks in their personal finances and who need to cushion the impact of the recent economic crisis. There are a lot of factors that lead people to enter into loan refinancing contracts. One of the major factors is that the negative impact of the crisis in the cashflow of families, for example. Since the crisis started, many families have been seeing their cashflow thinning out, compelling them to find better alternative to accessing cash.
Companies that are involved in refinancing equity loan address this need by lowering the interest rates that debtors need to pay, giving them extra cash to spend on other essentials. If you are thinking of refinancing equity loan as an option, there are certain important things that you should know and keep in mind.
First, you need to assess and find out if it is a better alternative to refinance your first mortgage and the outstanding balance on your home equity loan. You can do this by calculating the amount of money that you will have to pay if you opted to refinance your first mortgage. Then consider the how much you stand to save from refinancing equity loan. If you are able to find a creditor that is ready to give you a very low interest rate, then you are likely to end up with savings from having a lower monthly payment, even if you add up the outstanding balance from your home equity loan.
Second, you need to check too whether or not your credit rating has decreased from the time that you contracted your equity loan. Why is this important? When credit companies assess their applicants, they look at the credit rating to help them decide the rate of interest that they should charge.
This, having a lower credit rating means you should be ready to pay a higher interest rate because the risk that the credit company assumes when it lends you the money is higher too, as opposed to the risk it assumes when transacting with people having a higher credit rating. Simply put, those with a higher credit rating are most likely to pay the instalments as they fall due.
Third, opt for refinancing equity loan rather than refinancing your first mortgage because the former option typically results in decreased closing costs as well. Refinancing first mortgages is a longer and more complicated process because it requires property appraisals, and title assessments and search—processes that you won’t have to go through if you are refinancing equity loan because the creditor would typically rely on the market values of the property.
Fourth, make sure that you fully understand the risks that you are exposing yourself to. This is especially advisable if you are looking at upgrading your loan. This simply means that you will receive a lump sum but you will have to pay higher instalments as well. The best way to know if you are ready for this is to ask yourself whether you have the means to service the loan even in the event that you lose your job or you suffer a pay cut. If your answer is no, then you might have to rethink this option.