Things to Consider before Refinancing with a Home Equity Line of Credit
Things to Consider before Refinancing with a Home Equity Line of Credit
After you get approved for this type of line of credit, you could pay off a mortgage, and make payments to the HELOC provider rather than on your mortgage. Note that HELOC interest rates are variable, meaning they could just fluctuate down or up; and that it is tied to an index, which is generally the prime rate.
When it comes to refinancing, some people ask “Is a home equity line of credit a good idea?” If you are thinking about whether it is the best choice for such a purpose, then below are some things you need to know first in order to decide well.
Using a HELOC to pay off a mortgage is basically a way of refinancing. It lets you reduce your rate of interest without closing costs linked to a home refinance. Before you settle on a home equity line of credit, you have to consider many things, including the ones related to the following.
- Your existing mortgage: Consider the amount of money you still owe, your monthly payments, and the amount of time you would need to repay it.
- Your options with this kind of LOC: For one, think about whether you will be able to make further payments toward your remaining principal balance on your HELOC.
- Your alternative borrowing options: Think about what your interest savings would be under a normal refinance.
