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Why You Should Refinance Your Home Equity Line of Credit

You got a home equity line of credit to make your home improvements. You have finished, and now your line of credit is just sitting there. A good idea is to refinance your home equity line of credit. These lines of credit tend to have some very undesirable characteristics that often cost you even more money that you would think. Refinancing your home equity line of credit can save you money in the long run. Here’s why.Most home equity lines of credit have an adjustable rateThe adjustable rate of a home equity line of credit means that you are at the mercy of rising interest rates. Should rates rise, you will find yourself making higher and higher payments each month. If you want to make sure that you get rid of that adjustable rate and settle in for a predictable payment each month, refinance your home equity line of credit with a fixed rate home loan. You will lock in a rate, and receive protection against further increases.It can be tempting to keep using that home equity line of creditWhile a home equity line of credit is not limitless, it can be pretty easy to keep spending. If you didn’t reach your limit with the home repairs, you might be tempting to take more money out. That’s money that you will have to pay interest on. Remember: the more money you take out, the more interest you will have to pay. Refinancing your home equity line of credit is much like cutting up a credit card. You still have to finish paying it off, but at least you won’t be using it anymore.Fees can be a dragWhile not all lenders require participation, some charge you monthly or yearly fees during the life of the loan. Also, you might have to pay transaction fees every time you use money from your home equity line of credit. As if paying interest weren’t enough! If you refinance your home equity line of credit you can pay off the home equity line of credit and get rid of those extra fees.Avoid the big paymentSome home equity lines of credit require a large payment at the end of the loan term. Not all lines of credit require this, but some do. You make your monthly payments, and then at the end of the term, you realize your payments weren’t enough to cover. Now you have a big payment. You can usually finance this at the time. However, you can avoid the shock and the hassle if you refinance your home equity line of credit with a regular fixed rate home loan.

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