Home Equity Loan Refinancing

If you've lived in your home for more than two years, it's likely that it's gone up in value, which means you've built up equity. What is equity in a home? Home equity is the difference between how much your home is worth and how much you still owe on it. If the appraised value of your home is $200,000 and all of the liens against it add up to $150,000, then your home equity is $50,000. When a home has gained value over time, the owner often decides to get some of that value in cash. The money is sometimes used to pay off bills, fix up the house, or pay for a child's education. Refinancing your home with a home equity loan is one of the best ways to get the money you can get from it.

If you want to get a home equity loan, there are a few steps you should take to make sure you get the right refinancing package.

1. Know how good your credit is. By law, you can get one free report on your credit every year. Most of the time, the same companies that give you your credit report will also give you your FICO score for a small fee. You can get a home equity loan based on more than just your credit report and FICO score, but those are good places to start.
2. Be alert to potential scams. Don't let your refinancing lender scare you into signing something that isn't true. Don't sign anything you haven't read or that has blanks.
3. All proposals should be put in writing. Compare them, and make sure you're always comparing the same kinds of things. For example, don't just look at the bottom line number of the closing costs; see what each lender includes in the closing costs.
4. For the real loan, you will need a certified appraisal. But you should know how much your home is worth before you start the process of refinancing. There are a lot of online services that can help you figure out how much your home is worth. The newspaper often has a list of home sales. Look at these listings to find homes in your area that are about the same size and condition as yours. Take note of the prices.
5. At the moment, the market for refinancing home equity loans is busy and very competitive. As a homeowner, you probably get loan requests by phone, mail, or the Internet almost every day. Don't agree to any of these requests without finding out more about them first. The best thing to do might be to start looking for a bank or mortgage broker on your own. Also, keep in mind that a mortgage broker won't always try to get you the best deal, no matter what kind of loan you need. You should make sure that the final loan product is what you need. If you want to refinance your loan, the Better Business Bureau, the yellow pages, the Internet, and recommendations from friends are all good places to start.
6. Let the lenders know that they have to compete for your business if you want to refinance. Sometimes, a lender will sweeten your deal if it looks like you might lose it if you don't.
7. Once you've found a few possible places to refinance your loan, ask the lenders to tell you about the different kinds of loans they have. Don't be afraid to ask specific questions, and don't let a low interest rate lull you into a false sense of security. A low interest rate is not a good enough reason to take out a loan. Ask about the loan's term and how much it will cost to close. Make sure the lender explains any terms, like "points," that you may not fully understand.

Know what your rights are. When you refinance your loan, you usually have three days to back out without having to pay a fee. Don't be afraid to use this right if you think something is wrong.

Refinancing your loan so you can use your home's equity can be a smart way to handle your money. Your home, on the other hand, is probably the biggest part of your net worth, so be careful and know what you're doing.