HELOC meaning Hom Equity Lines of Credit offers a means to access credit at lower interest rates which makes it better than personal loans or credit card loans. Refinancing means a new loan is taken to cover an existing loan. While you can refinance any loan, it is important to know how to refinance a HELOC. There are different reasons why you may want to refinance your HELOC loan as well as different means to refinance the loan.
A home is one of the most valuable assets of every family. Aside from it being a roof over their heads, a home is a financial tool that can be used to access funds from a HELOC. However, HELOC possesses higher interest rates than other mortgage interest rates. This makes it quite difficult to repay when taken. For this reason, refinancing this home equity loan may be a good option.
However, unlike personal and credit card loans, HELOC requires borrowers to pay interest during the draw period. Depending on how much loan you take, the interest rates charged may cause your loan amount to increase your repayment more than the actual loan taken.
Can I Refinance My HELOC?
If you are having a hard time repaying your loan, refinancing your HELOC is a good option to consider. While this is an option, not every homeowner qualifies for this. Every HELOC lender has its own requirements borrowers are to meet to qualify for refinancing. Most lenders consider the following factors when determining a borrower’s qualification:
- Home Equity.
- Debt-to Income ratio.
- Credit Score.
Most HELOC lenders consider these factors when considering a borrower’s qualification for loan refinancing. They determine whether or not you can refinance your HELOC.
5 Methods to Refinance a HELOC
As previously stated, there are several ways you can refinance a HELOC. If you are having a hard time repaying your loan and you are considering refinancing, below are 5 methods you can use to refinance your HELOC:
Speak to Your Lender Concerning the New Loan Terms
Most banks that offer home equity assistance programs allow borrowers to adjust their interest rates, loan terms, and monthly repayments. If you have a good relationship with your HELOC lender, getting this to work out may be possible. Since HELOCs are most times portfolio loans, lenders may agree to modify loans.
Create a new HELOC
Most lenders allow borrowers to create a new HELOC and move some or all of the old loan balance into it. However, it requires borrowers to pay interest on the loan balance, but borrowers will be returned to the line of credit’s draw period.
This means the principal payment on HELOC can be avoided. This is a good option to consider for young borrowers who have more years to build up more home equity.
Pay off your HELOC using a home equity loan
Although this option taps into your ownership stake, a home equity loan differs from a line of credit. It provides a lump sum payment and requires borrowers to begin repayment with a fixed interest rate. Fixed interest rates, steady monthly payments, and a longer repayment term make this refinancing option a good one to consider.
Refinance your HELOC to a new mortgage
Refinancing your HELOC to a new 15-year or 20-year mortgage is a good way to lessen your total interest rates. Mortgage interest rates tend to be much lower than interest rates of HELOC. However, this option is most times more complicated and involves a lot of paperwork. Irrespective of this and other factors, taking a new mortgage for your HELOC is the best option to reduce your interest rates.
Survey a Cash-Out Refinance
Cash-out refinancing is the act of taking a new mortgage that is more than you currently owe for your home and getting a difference in cash. The extra funds to pay off some or the entire HELOC balance. However, do not forget that refinancing your mortgage means you will have to pay closing costs and fees.
Can I Refinance a HELOC to a Mortgage?
You can refinance a HELOC into a mortgage in a couple of ways. One option is to take out a cash-out refinance and use the funds to pay off the line of credit.
Alternatively, you can consolidate the remaining HELOC balance into a traditional refinance of your primary mortgage. Regardless of the method you choose, refinancing your HELOC can make your repayment terms more manageable and flexible.
