Refinancing your Home Equity Loan

If you have lived in your home for more than two years, it has probably appreciated which means that you have built up equity. What is home equity? Home equity is the difference between the value of your home and the amount of all that you owe on your home. If your home has an appraised value of $200,000 and all of the outstanding liens against it total $150,000 then your home equity equals $50,000. Often times when a home has accumulated value, the homeowner decides to take some of that value out in cash. Sometimes the cash is used to pay off bills, for home improvements or for a child’s education. One of the best ways to tap the money available from your property is to refinance it with a home equity loan.

When considering a home equity loan, there are several steps you should take to ensure you choose the refinancing package that is right for you.

· The current market for home equity loan refinancing is crowded and very competitive. As a homeowner you probably receive solicitations for loans almost daily via the telephone or the mail or the Internet. Be wary of accepting any of these solicitations without thoroughly investigating them. The best course of action might be to initiate your own independent search for a financial institution or mortgage broker. Also be aware of the fact that a mortgage broker in any loan situation is not automatically working to get you the best deal. You are the person who should take responsibility for making sure that the final loan product is the one you need. The Better Business Bureau, the yellow pages, the Internet and references from friends are all good places to start your search for refinancing your loan.

· You will need a certified appraisal for the actual loan. However, it is wise to have an idea of the value of your home before you begin the process of refinancing. There are many online services that will give you an estimate of your home’s value. Many times home sales are listed in the newspaper. Watch these listings for homes in your neighborhood that are similar to yours in size and condition. Note their prices.

· Know your credit score. By law you are allowed one free credit report a year. The credit reporting agencies that supply the report generally will also offer your FICO score for a small additional fee. There are other factors that influence your ability to obtain a home equity loan but your credit report and FICO score are good places to start.

· Once you have identified several possible sources for refinancing your loan, have the lenders explain the different loan products they offer. Don’t be afraid to ask specific questions and don’t be hypnotized by a low interest rate. A low interest rate alone is not sufficient reason to accept a loan proposal. Ask about the term of the loan and the closing costs. Make sure the lender explains any terms you may not fully understand such as points.

· Let the lenders know they are competing for your refinancing business. Sometimes a lender will sweeten your deal if there is the possibility the it might be lost otherwise.

· Have all proposals submitted in writing. Take the time to compare them and always make sure you are comparing the same types of things. For instance, don’t just look at the bottom line number on the closing costs see what each lender is including in the closing costs.

· Be alert to potential scams. Don’t be intimidated by your refinancing lender into signing anything that isn’t absolutely true. Don’t sign anything that has blanks or that you haven’t read.

· Know your rights. There is generally a three day penalty free right to cancel when you refinance your loan. If something doesn’t seem correct to you, don’t shy from invoking that right.

Refinancing your loan in order to access your home equity can be a wise financial move. Your home, however, is probably the largest portion of your net worth so proceed with caution and knowledge.