Tips on Refinancing Your HELOC (Home Equity Line of Credit)
Home equity lines of credit (HELOCs) can be powerful tools when in the hands of homeowners who understand the benefits as well as the risks associated with such financial instruments. For those homeowners who failed to complete their due diligence and obtained HELOCs simply because they were drawn to the perception of available money they did not realize they could use, the credit line has the potential to create a disastrous situation.
It’s essential that homeowners understand that nearly every HELOC has an interest rate that his adjustable, and will therefore fluctuate in response to various governmental and industry-specific financial events beyond our control. A great number of homeowners with HELOCs have bombarded lenders with requests to refinance those credit lines into fixed-rate loans because their payments have increased more dramatically than originally anticipated.
Some points to remember
A large number of HELOCs contain pre-payment penalties for a certain period of time after inception, meaning that if a homeowner refinances his HELOC into a fixed rate loan (even if it’s with the same lender) there is the possibility of incurring additional expenses. Plus, since the homeowner would then be obtaining a brand new loan there would definitely be new closing costs as well. All of the fees and penalties can begin to total rather substantial sums, so it’s important for the homeowner to evaluate all of the costs associated with such refinancing and ensure that the decision makes sound financial sense.
Aside from the potential for additional expenses, refinancing a HELOC into a fixed-rate loan also means that the homeowner will be extending the length of time required to completely pay off the property. Depending on how far into the original mortgage he was at the time of refinance, that day when the home is free and clear could possibly be extended by a few more decades.
