Making the decision to refinance a home equity loan is an important choice which should involve a great deal of consideration. The following are ten key points for homeowners to consider when making this important decision of securing a second mortgage loan:

1. The purpose for which the liquid funds will be used should be considered. The loan could be used for debt consolidation, investments, college tuition, buying a vacation home, home repairs or additional home construction to the current home.

2. The method which will be used to refinance the home equity loan should also be considered. Will it be a fixed interest rate equity loan or a variable rate credit line?

3. The next consideration should be the length of term over which the loan will be paid off. The length of the loan agreement combined with the interest rate dictates the amount the homeowner will be paying in interest over the course of the loan. Most home equity mortgages will have terms ranging from 15 to 30 years. Longer terms will have lower payments, but over the life of the loan you will pay alot more interest with longer terms.

4. The next consideration should be to compare the higher closing cost of fixed rate mortgages to the savings on lower or no closing cost with variable rate credit. If you keep the loan for a few years, typically fixed rates with fees will cost you a lot less than a free revolving credit line that has a high interest rate.

5. Pre-payment penalties should also be considered. Fixed rate second mortgages usually do not carry a pre-payment penalty beyond 3 years. Variable rates with little or no closing cost can carry a substantial early closure fee or penalty if the line is closed out in the first few years.

6. The type of loan is another important consideration. Total mortgage refinancing or just refinancing the home equity loan are two of the options available. Monthly payments should also be considered with particular interest to whether a second mortgage on the home at a fixed rate will provide less monthly cost than a line of credit at a variable rate. In a line of equity credit the amount borrowed is available but no debt is incurred until the proceeds are used. The home equity line of credit can save money if the funds are to be released periodically.

7. Another consideration is whether the homeowner wants the loan to be repaid interest and principal or interest only. The homeowner’s current financial situation as well as his future financial goals will dictate this decision.

8. Another consideration would be a hybrid 2nd mortgage that offers a fixed rate for 3 or 5 years.

9. A secured mortgage is one in which collateral is used to secure the loan. The loan is limited to 75% of the collateral used to secure the loan. There are no closing cost or pre payment penalties involved.

10. Lastly, the main consideration is how much am I saving monthly? Homeowners should evaluate whether the monthly savings are sufficient to justify refinancing.

Taking out an additional lien on your property should always be taken seriously. These are secure loans, and repayment of the loan will be essential for maintaing ownership of your home. Home equity loans can be very beneficial, but always consider looking at loan from several perspectives.

Mary has been writing mortgage loan related articles for homeowners for many years. She is a respected free-lance writer who had countless finance articles published. You can read more of her residential lending articles online at BD Nationwide Mortgage & Home Equity Loans. To get more equity loan advice & finance tips, please contact the loan team to learn more about program updates and the approval process for second mortgages and 125% home equity loans.

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