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Home equity loan refinancing? As odd as the concept may sound, some financial experts are saying that the time is right to do just that. Generally, the interest rates on home equity lines of credit make them a more attractive borrowing option than a longer term home equity loan. Right now, say experts, home equity loan refinancing makes sense because short-term interest rates have climbed while long-term mortgage rates have dropped. This has created a situation where long-term borrowing actually costs less than a short-term home equity loan.
According to Jack Guttentag, a mortgage columnist and expert in finance, home equity loan refinancing makes sense because “We’re talking about the safety of going for the fixed rate while the getting’s good.” Safety is one good reason to refinance home equity loan debt. Traditionally, a home equity line of credit carries more interest rate risk than a standard home equity loan or a mortgage. Because a home equity line of credit is a short term loan, generally with a variable rate of credit, there’s a much stronger chance of the HELOC rate rising than there is when you refinance home equity loan debt into a fixed rate, closed-end loan. In addition, warn some financial experts, many home equity lines of credit cap their variable rate at as high as 25% over the life of the loan. When you refinance home equity loan debt into a fixed rate loan, they say, you’ll be locking in today’s low interest rates and saving yourself money – both short term and in the long run.
Home equity loan refinancing in the current market can save you thousands of dollars in interest rates each year, claim financial experts. If you’re carrying a large balance in a HELOC, the interest rate you’re paying has risen 2% in the past year. That means that if you’re carrying $10,000 debt in a HELOC with an interest rate tied to the Prime Lending Rate, you’ll be paying an extra $200 a year in interest charges – and that’s likely to keep rising.
Meanwhile, after months of dropping interest rates, long-term mortgage rates have slowly started rising again. In the past week, the prime lending rate has topped 6% for the first time in over a year, and with most lending rates tied to the prime, all the financial indicators are that fixed rate mortgages will continue to slowly rise. That’s why many experts are recommending that you consider home equity loan refinancing NOW, while the rates for home equity loan refinancing are still low.
Instead of paying both a home equity line of credit and your first mortgage, they suggest that you consider taking out a debt consolidation home equity loan. By rolling both your mortgage debt and your HELOC debt into one refinance home equity loan, you’ll lock in the current lower interest rates, shorten your repayment period and save money in the long run. A debt consolidation home equity loan makes more sense now than it ever has. Take a look at your current interest rate, and what you could save with a debt consolidation home equity loan by locking in today’s interest rates before they rise.
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