Home equity refinancing becomes helpful when a borrower wants to reduce the interest rate on his existing loan. Moreover, refinancing can be used for various other purposes including of changing the amortization period, converting adjustable rate to flexible rate or vice-versa, etc. A mainstream thought is that home equity loan refinancing should be pondered only when it is essential as there can be various other cons of it.
Home equity is the market value of the home which a borrower pledges as collateral. However, the difference between the home's fair market value and the outstanding balance of all liens on the home too are considered before the valuation. Borrowers pledge the equity of his home as collateral to get a loan and the same is called home equity loan. Home's equity fluctuates depending upon the market forces and the payment made by the borrower on existing loan on it.
Home equity loans are secured loans as the debt is secured against the collateral pledged by the borrower and in a circumstance the borrower defaults on the payment of loan amount the lender can either ask for the possession of the asset from the court or can go for foreclosure of the home and get back the amount. In addition to reducing the interest rate, home equity refinance can also be used for major home repairs, medical bills or college education of children, etc.
Home equity refinancing, however, requires from a borrower to pay fees such as appraisal fees, originator fees, title fees, stamp duties, arrangement fees, closing fees, early pay-off fee, etc. to pay to lender. Not to say there are some other requirement of documents too which is essential for the following of the procedure to get home equity refinance. Though there is no rule of thumb that refinancing of home equity is always beneficial, it is in vogue these days.
When the interest rates are low, refinance can help in saving some money which then alternatively can be used to pay back the loan amount. Similarly, a plan to convert short term loan e.g. 15 year to long term 30 years, in such a situation the borrower receives extended time to pay back the loan comfortably. Also, a situation may come when the borrower is not able to pay existing loan, refinance can enable him to pay back once the refinance is final.
Depending upon the specificities of situation, refinancing home equity works for the benefit of borrowers. Home equity refinance allows a borrower to reduce borrowing costs by more closely aligning the cost of borrowing with the general creditworthiness and collateral security available. Moreover, there are certain tax benefits which are offered to borrowers in refinancing home equity which can be availed opting refinance loan.
Cash-out refinancing of home equity loan helps lower down the monthly payment. Additionally, it also can shorten mortgage periods or pay back time of the loan. Not to say home equity refinancing can be used for home improvement, credit card and other debt consolidation, etc. in case the borrower qualifies with the current home equity of the lender. Moreover, borrowers can refinance with a loan amount larger than the current mortgage and still keep the cash difference at bay.
Article Source: http://www.articlesbase.com/insurance-articles/refinancing-home-equity-works-for-the-benefit-of-borrowers-2587448.html
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