Yes, you can refinance a home equity loan. Refinancing could ultimately prove to be a smart financial move for homeowners looking to reduce monthly payments, secure a potentially lower interest rate, or access more cash. Refinancing offers flexibility and potential savings. 

To refinance a home equity loan, you typically need a good credit score, sufficient home equity, stable income, and a low debt-to-income ratio to meet lender requirements. You also must own your home. A home equity loan is secured by your property, so maintaining ownership is essential. 

Suppose you are looking to get funds to renovate your home in addition to refinancing. In that case, RenoFi allows you to take a refinance based on the future value of your home allowing you to not only get a lower interest rate but borrow up to 11x more on average. 

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How to Refinance a Home Equity Loan

To get started, you need to review the details of your current loan, check your credit score, and assess your home equity. 

Assess Your Present Situation 

Determining if a refinance is ideal for your present situation is vital in making decisions. Assessing the latest interest charges and comparing them to what you have will help you determine the savings you will accumulate over time. You also need to weigh your occupation period to determine if the savings will be more than the refinancing amount.  

Evaluate Your Credit Score 

Review your credit rating since it determines the interest rates you will get from a home equity loan. Assessing your credit rating also helps you to determine whether you qualify for a refi. Raising a credit rate from, let’s say, 670 to 740 might reduce your rates by a big margin.  

Calculate Your Equity 

You can use the loan-to-value proportion to determine how much is available for borrowing against your property. If your home value has risen, for example, from $350,000 to $400,000, and your outstanding mortgage amount is $200,000, you can consider refinancing since the share is enough to secure you.  

Decide on the Best Lender 

Talk to various financiers and determine the most flexible interest rates and regulations. If you are looking to lower your monthly charges, calculate the rates that favor your refinancing needs. Find out how long it will take to complete the payment. Checking the annual percentage rates (APR) is ideal since it helps you understand the total amount you will pay for the loan. 

Have Clear Financial Goals 

Choosing refinancing that matches your current financial situation and obligations is ideal for new home equity. This also assists you in determining the application fees if you are considering an early cash-out plan.

Choose Your Refi Type 

Depending on your financial objectives, you need to evaluate whether you need a home equity plan, cash-out refinance, or HELOC refinancing. If you intend to access your equity on a rotating basis, you may need HELOC refinancing. If you want to replace your current financing with lower rates, a cash-out refinance may be an ideal option. 

Proceed With the Application 

Provide the financiers with proof of revenue, property, and debts. You may also need a home appraisal to evaluate your home’s present worth. When the refinancing closes, settle the upfront charges and use the new loan to buy off the existing home equity financing. Your new terms are now applicable. 

Qualifications for Home Equity Loan Refinancing 

Not every home equity loan qualifies you for refinancing because there are minimum requirements. You must provide your home as the security for the refinancing. Various lenders ask for a combined loan-to-value (CLTV) ratio of above 85%. This means that your total outstanding property-secured debts shouldn’t exceed 85% of your home value. 

You also need to keep reassessing the value, as it may fluctuate after your first loan. When rates drop, fluctuations occur in the local real estate market, reducing your property’s resale value. If your home equity loan is large and you have not paid much, it may exhaust your finances. You also need to specify individual and credit obligations. 

Your debt-to-income ratio must be low, and you must provide evidence of a satisfactory income. The current home equity must indicate your commitment to repayment. This is necessary when you require refinancing with the same financier. 

Benefits of Refinancing a Home Equity Loan 

  • You access refinancing on lower interest charges, which means that your monthly payments will also be reduced. 
  • You also get the chance to shift from flexible-rate to fixed-rate financing. 
  • Refinancing allows you to receive additional funds to perform any home improvement project. 
  • Refinancing also helps you to access adjustable repayment periods that suit your financial needs. 

Drawbacks of Refinancing a Home Equity Loan 

  • The financier you choose may have a policy that dictates a prepayment fine on any home equity loan. 
  • There are repayment risks, such as foreclosure, when you sign up for a refinancing that translates to a higher monthly charge and a shortened payment period.  
  • The market decides the value of your home. In other words, if the home value falls short of the home equity and the mortgage, you might face financial difficulties. You may also be unable to refinance if the real estate market fluctuates. 

How to Refinance Your Home Equity Loan and Mortgage 

You can refinance both loans concurrently through a cash out refinance, which involves accessing a sizeable mortgage than your present one. The surplus amount is usually used to pay for the home equity financing. 

Pros of Refinancing Both Loans Concurrently 

  • Refinancing both loans offers you an opportunity to consolidate your debt into a single settlement. This reduces your financial obligations and lowers your overall interest charges. 
  • Since the additional funds are available in cash, you gain access to a cash-out plan. You can use the funds for home improvement and other projects. 

Potential Drawbacks of Refinancing Both Loans 

  • You may end up paying more interest because a cash-out often provides high interest rates.
  • You attract longer payment duration and increase the total amount. 

Benefits of RenoFi Loans 

RenoFi loans offer you a fixed-rate home equity payment with term options of 10, 15, and 20 years, with no repayment penalties. You can choose between a fixed-rate home equity loan and a home equity line of credit plan. Renofi loans allow you to borrow against your after-renovation value, not your current home value. RenoFi matches you with ideal lenders to facilitate a smooth loan process.

For example, here is how a traditional home equity loan would work with a $500,000 home:

  • Home price: $500,000
  • Downpayment (10%): $50,000
  • Current Mortgage Amount: $450,000

In 5 years, let’s say your home value rises by 20% and you’ve paid off $50,000 of your mortgage:

  • New home price: $600,000
  • Current Mortgage Balance: $400,000
  • Your Equity in the house: $600,000 (Home price) - $400,000 (Mortgage balance) = $200,000
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Home Equity Loan Terms:

A Home Equity Loan may offer 80% of your total equity balance as a second mortgage in the second lien position (second priority of debt that gets paid out after the 1st).

  • New home price: $600,000
  • Current Mortgage Balance: $400,000
  • Your Equity in the house: $200,000
  • Example Home Equity Loan % of Equity: 80%
  • Example Home Equity Loan Amount: $200,000 * 80% = $160,000

Instead of only using the equity you have in your house, RenoFi allows you to use the after renovation value of your home as a lump sum at a fixed interest rate.

Assuming that you can increase the value of your home to $600,000 after renovations, RenoFi allows you to take a loan against the future after renovation value of your home.

Using the same example above:

  • New home price: $600,000

  • Current Mortgage Balance: $400,000

  • Your Equity in the house: $200,000

  • Example Home Equity Loan Amount

    • Home Equity Loan % of Equity: 80%
    • Home Equity Loan Amount: $200,000 * 80% = $160,000

  • Example RenoFi Home Equity Loan Amount:

    • After Renovation Value of Your Home: $1,000,000 
    • Your Equity in the After Renovation Value of Your Home: $1,000,000 - $400,000 = $600,000
    • RenoFi Loan Amount: $500,000

By writing a loan against your equity in the after renovation value of your home, RenoFi allows you to borrow funds for renovation against $600,000 versus $200,000. This increases your loan amount from $160,000 to $500,000, allowing you to borrow 3x more than traditional Home Equity Loans  for renovations.

In addition, RenoFi loans offer:

  • No draw periods
  • No inspections
  • No need to give up your original loan

RenoFi loans are funded on the day the loan is closed and that is it. Take out the $500k and you get $500k in your bank and you have 20 years to pay off in equal monthly payments with interest and principal, just like a standard mortgage.

Get started with your RenoFi loan here

Refinance Your Home Equity Today 

You can refinance your home equity, which allows you to cover expenses like home renovations and other projects. You can also refinance your home equity to buy another property with an existing mortgage. 

Additionally, our RenoFi home equity loans are an ideal way of financing any property project. As opposed to conventional loans that depend on your current property worth, RenoFi loans work on the after-repair value, which enables you to access an average of 11 times more. 

You also get minimum monthly payments and potentially lower rates on your primary mortgage. With RenoFi loans, you can get funding for your new purchase or property renovation today. 

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By RenoFi Team Our dedicated team of Renovation Advisors, Loan Officers, and experts oversees our entire content production process to ensure it provides a high-level of authority and benefit to our website visitors. While all content has been thoroughly proofread and fact-checked to publication, we advise that it should be consumed for general informational purposes only.

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