5 Steps to Successful Refinance Home Equity Loans

The steps you take to refinance home equity loans will directly affect how much money you actually save with the process. Not all refinances will net gains making research and calculations an essential protection against the possibility of a loss.

#1 Research Fees with Current Lender

Your current loan contract will include a section regarding fees for modification or prepayment. When you refinance, you will be taking out a new loan and prepaying your current loan, so these fees will apply. Keep these fees in mind as you move forward. Only refinance if the lower interest rate will actually overcompensate for these fees. Remember: your credit score will also suffer after refinancing a loan. As such, both of these losses need to be taken into account.

#2 Research Interest Rates and Credit Market

You are not looking for a loan in a bubble. In fact, the larger market factors will have as much to do with your quote as any of your personal application items. Know what the national prime interest rate is at the time you are applying. You should also take time to read information about the current credit market. Typically, when an economy is strong, interest rates are high but the credit market is easily tapped. In a recession, interest rates will be low, but you will need very good credit to take out a new loan.

#3 Prepare Credit

You should not apply for a refinancing loan unless your current home equity loan and mortgage are in good standing. Any late or missed payment within the past two years will typically make your new interest rate much higher than your previous. Further, you should consider the impact of the debt you are currently carrying. Paying down your balances on each of your credit lines will save you money and raise your credit score.

#4 Ask for Quotes

Once you have determined the time is right to apply, you should begin seeking quotes from new home equity lenders. You can speak with your bank, mortgage lender and other financiers regarding their standard rates. Submitting a quote request to about 3 lenders will give you a good basis for comparison. At this point, you should factor in the losses due to fees you considered in step one. The loan that offers you the most savings over time will be the best option. Only move forward if you will net a savings substantial enough to compensate for the fees.

#5 Close Current Loans

You will need to assure your current loan is closed. Do this by not only confirming with the lender but also checking your credit report. You will note on your credit report that your lender like marked it as closed in an unsatisfactory manner due to the prepayment for refinancing. However, since you anticipated this in step one and considered it as you moved forward, you should be prepared to take the loss in credit score. If there is any delay in the closing of your current loan, you should contact the lender immediately to assure you have taken the appropriate steps.

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