What to watch out for
Refinancing can be risky. These are some of the obstacles you may run into:
- Closing costs. A home equity loan comes with the same closing costs as a regular mortgage. You may be able to roll them into your new loan or ask for a lender rebate. To save in the long run, factor them into your budget and try paying the closing costs up front. Otherwise, you’ll be paying interest on the closing costs until your loan is paid off.
- Refinancing fees. Refinancing has its own set of fees, so determine if lower monthly payments will offset those costs.
- Depreciation of home values. If your home declines in value, you may end up owing more than it’s worth. In that case, you probably can’t refinance your home equity loan.
- Disparity in interest rates. Cash-out refis tend to have higher interest rates than home equity loans.