Refinance Your HELOC (Home Equity Line of Credit)

In order to refinance a HELOC loan, you will need to complete several steps. Here are a few things to consider about refinancing an existing home-equity line of credit, or HELOC.

First Mortgage

One option that you have is to refinance your HELOC back into a first mortgage. In order to do this, you will need to take out a new mortgage and use the money to pay off your first mortgage as well as your home-equity line of credit. This option is preferable because it will eliminate the need for two different loans. In most cases, you will also be able to take advantage of lower interest rates with this option. Traditional mortgages are always going to have a lower interest rate when compared to a home-equity line of credit. This interest rate reduction can save you some significant money over the life of the loan.

In addition to saving money, you will be able to extend the repayment period. With a standard mortgage, you will be able to extend the repayment period over 30 years in most cases. This will have the effect of lowering your payment overall. When you compare your new mortgage payment with the total of your old mortgage payment and home-equity line of credit payment, it is going to be less. 

Second Mortgage

If you are considering refinancing your HELOC, you might also need to take a look at second mortgages. The major advantage of going with a second mortgage instead of a home-equity line of credit is that you can get a fixed interest rate. With most home-equity lines of credit, you will be dealing with an adjustable interest rate. The interest rate is going to fluctuate up and down based on the movement of a financial index. This means that your monthly payment is going to fluctuate from one year to the next. Many people do not like this uncertainty in their monthly budgets. In order to eliminate this uncertainty, you can refinance into a traditional home-equity loan. This will provide you with a fixed interest rate over the entire life of the loan and a fixed monthly payment.

Shopping Around

Regardless of which type of option you choose to pursue, you will need to make sure that you shop around to get the best deal. There are many different mortgage lenders out there that would be willing to work with you in most cases. You need to work with several of them so that you can get the lowest interest rate in the market. Each lender is going to have their own interest rates that they can offer you. In addition to this, you will have to be aware of closing costs with each lender. Look at the total package that a lender is offering you before making a decision on a loan.

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