Refinancing Home Equity

Refinancing home equity isn't necessarily a cut and dry issue because many factors come into play before making a go or no go decision. Surprisingly, a lot hinges on what kind of personality a person has; brooder, melancholic, a natural worrier or upbeat, optimistic and positive. As a result of those natural personality indicators, the nature of economic times, good or bad come strongly into play. Since refinancing may involve lending agreements that are variable rate interest lending transactions, the market ups and downs can send a more brooding personality into a tailspin. So first take a real inventory of what kind of risks and fluctuations a person can tolerate, and if married, make sure this character inventory evaluation includes a person's spouse. The spouse will always give the right and honest appraisal!

So how long will the person or family be living in the house? Unless a person is living in an area of the country where house values are continuing to climb, an anticipated short stay in a house (less than two years) may not bode well for one's bottom line. For example, since closing costs are always a part of the refinance deal, it may take several years to recoup those costs through a lower interest rate loan. Moving from that house in two years or less will put a person in the hole financially despite a lower rate. And even if a person gets a no point loan, the costs are always included in the loan itself. Many online calculators are available for a person to use that will clear up any short stay refinancing home equity questions.

Another factor that is also important in considering whether refinancing home equity is right for the consumer would be the issue of personal finance changes. Has employment status changed? Have new debts been added to my credit report and have there been on time payments or are there late payments recorded? The cold hard truth is that each time a refinanced mortgage request is put forward, the borrower goes back under the microscope for inspection. This is true even if the request is for a cash out mortgage where earned equity is being covered with the new loan. Someone has wisely said that it is in the good times, the times of plenty and no want that the interest and true trust in God is put to the test. The Psalmist said it beautifully when he penned, "But let all those who trust in thee rejoice; let them ever shout for joy, because thou defendest them: let them also that love thy name be joyful in thee." (Psalm 5:11)

When economic times get hard, credit gets much harder to obtain. In frisky economic periods, banks which traditionally offer the lowest interest rates have typically made the 650 credit score a benchmark threshold for lending. Mortgage investment companies are more lenient in these upbeat times, allowing perhaps even a 600 score to be considered. When the pendulum swings the other way, banks may call for 725 to be their FICO threshold for lending and investment companies may make a 675 FICO their low ceiling number. And because so many factors actually go into crafting a credit score, such as payment integrity, unsecured loan balances, length of credit history, types of loans and frequency of loan applications, it can be possible for a homeowner seeking the refinancing home equity opportunity through a new cash out mortgage could be denied the loan.

But let's say that a person does have great credit and has owned a home for ten years and now has thirty thousand dollars equity in the one hundred thousand dollar house. The owner needs money to pay for an expensive medical procedure not covered by health insurance. He could seek a home equity loan based on the equity in the home which will be a variable rate loan as all HELOCs are. Refinancing home equity with a HELOC is usually offered on about seventy percent of the accrued equity in a residence or other property. That would mean the owner could expect to receive about twenty one thousand dollars on that second mortgage loan. However, the owner needs twenty six thousand dollars and the owner is concerned that interest rates may spike in the next year and so concerns about the rate climbing and the low cash received actually scare him away from the refinancing home equity lending agreement.

But the homeowner had actually hit upon a very good opportunity for seeking refinancing home equity because his actual choice would be a cash out fixed rate remortgage of his house at the original one hundred thousand dollar level. In this homeowner's case, his original fixed rate mortgage was set at seven point two percent and will refinance his house again at one hundred thousand dollars, but this time at five and a half percent. This cuts his house payment by almost one hundred and fifty dollars a month and gives him the needed cash to fund the operation his wife needs so desperately. Not all refinancing home equity tales turn out so wonderfully with the dragon slain and the washer girl marrying the prince but it can happen with a good credit score and a dogged determination to wait on the best deal to finally emerge. The best advice is to find a good loan officer and talk about all the options.