Refinancing An Equity Loan

Refinancing an equity loan is defined as to finance an amount again, in this case a home equity loan which is based on the percentage of the value of real property that the owner includes in his net worth. Refinancing equity loans became popular when interest rates for mortgages dropped dramatically. Refinancing any amount is a way for a different lender to get interest from a previous balance. It is common knowledge that most mortgages require a majority of the interest to be paid earlier in the term.

It is not common knowledge that lenders can double dip from one loan by refinancing at a lower interest rate, and collecting a majority of the new interest on the new mortgage in the early part of the term. This can be done to benefit two lenders, and in the end results in the homeowner receiving a lower interest rate which, also saves them money in the long run and on their monthly payments. A lender will allow refinancing an equity loan because they would have already received a generous portion of their interest early. They are happy to be paid off after already collecting that interest. Refinancing an equity loan for the second lender is a benefit because this enables them to receive all of their interest money throughout the life of the new mortgage.

For example: Suppose Mark, a homeowner, refinanced after 5 years. This mortgage was for $50,000 at a 7% rate. His monthly payments were $388. The loan was originally for 20 years, but refinancing equity loans became the new talk at work, so Mark decided to check it out. Mark found out that after five years of making over $23k in payments toward his mortgage, only $6900 had gone towards principle. So he got a new mortgage for $43,200 to pay off the original balance at a 5% interest rate.

The refinance process would lower Mark's monthly payment by $47 per month. His total interest charges at the end of the first mortgage would have totaled $44k, but refinancing an equity loan would also save him over $8k in interest for the remaining 15 years. The first lender received over a 30% return on their money the first 5 years. That is an incredible return for an investor. The second lender received a 45% return on their money over 15 years. It is easy to see why lenders are in the mortgage business. It is advised to all consumers considering refinancing equity loans to check the lenders standing with the Better Business Bureau to be sure of customer satisfaction. Homeowners should also pray about this important decision. "Let my prayer come before thee: incline thine ear unto my cry" (Psalm 88:2).




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