Home equity loan refinancing occurs when a homeowner takes out a new home equity loan to pay off an existing home equity loan. There are a few reasons this could be done, including trying to get cash out, lower the monthly payment, or save money on interest. The process of home equity loan refinancing involves shopping around between multiple lenders, filling out a loan application, and then attending a closing. The new lender will provide money to pay off the old home equity loan and then the individual will start making payments to the new lender.
One of the primary reasons individuals will undergo home equity loan refinancing is to get cash out of their homes. After paying on a loan for several years, most homeowners accumulate some equity in their homes. Instead of selling the house to get access to the cash, the homeowner utilizes a home equity loan instead. If there is already a home equity loan on the property, the homeowner has to refinance it into a new loan. Money from this process can be used for anything the homeowner desires, including renovations, debt consolidation, or to make a large purchase.
Another common reason for pursuing home equity loan refinancing is to lower the monthly payment. After the balance is paid down on the existing loan, refinancing that balance into a longer loan term will make the monthly payment decrease. If the homeowner is having trouble making the payments, this can be a simple way to get it lowered.
Some homeowners wish to save money on interest when pursuing home equity loan refinancing. If interest rates in the market are lower than what they were when the original loan was started, refinancing the loan can save the homeowner some money. Over the course of the loan, this could result in significant interest savings.
The first part of the process of refinancing a home equity loan is to shop around. The individual should look at several different lenders to find the best deal. At that point, he or she will have to fill out a loan application. Important documents will also have to be provided, such as pay stubs or tax returns.
The lender will then verify the information and approve the application if everything checks out. The homeowner will then have to attend a closing with the lender. The lender will pay off the existing home equity loan and the homeowner will then start making payments to the new lender.