Home Equity Loan Refinancing Tips

Home equity refinancing allows you to renegotiate your existing home equity loan contract to get a better deal. Because you are seeking a better deal, you will be leaving the lender in worse shape than prior to the refinance. As a result, the lender will make attempts to stop you from refinancing. There are several options you can take in order to refinance despite the fact the lender may not want to work with you at first. 

File a Letter of Hardship

You can argue for a hardship refinance if you are going to have difficulty continuing with your current loan rates due to a financial emergency. Hardship modifications are easier to obtain than other forms of modification but only if you can truly prove you will default without the allowance. You will need to prove the following factors to ensure your application is approved:

  • You consistently made loan payments prior to the current emergency

  • You have an unforeseen emergency outside of your control that will prevent you from continuing payments

  • This emergency will be present for an indefinite period of time

If you believe these factors are true, then you are acting in your best interest as well as the lender's best interest through refinancing the loan. Neither the lender nor you will actually benefit in the case of a default. The hardship letter will need to be verified against your true financial circumstances. The most common emergencies are job loss, divorce, disability or medical bills. 

Look for Economic Validation

There is a chance your lender will offer you the change to refinance because of economic or market concerns. In some cases, the market will change after you have sourced your loan, and the loan will no longer be competitive. This typically occurs when national prime interest rates drop or the credit market opens up after a difficult period. Both of these scenarios could not be predicted or controlled on your end or the lender's end. If you could walk out the door and get a much better loan today, the lender may be open to hearing your argument for refinancing your home equity loan. 

Consider Third Party Refinancing

You may simply feel you can find better terms due to personal factors; perhaps your credit score improved or your income allows you to pay more each month. In these cases, your lender will not likely offer to refinance your loan, but you may find another lender willing to extend you a new one. You can use this new loan to pay off the existing loan. Then, you will have the terms you agreed on with the new lender remaining. This option results in the most amount of financial penalties. Your previous lender will charge you a fee for closing the loan early. The lender will also report you to the credit bureaus for breaking your loan contract. You will find your future loans may be more expensive as a result. Only pursue this option if you do not intend on taking another large loan for at least 2 years. 

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