If you have a mortgage loan and you have requested a home equity loan too, you can refinance both loans and get a single loan and a single monthly payment with the same or better terms than the average of both outstanding loans. This can be achieved by applying for a refinance mortgage loan.
Home equity loans, also known as second mortgages, are secured with the same asset as the primary mortgage loan, thus, when refinancing the home loan, you can include your home equity loan. This can provide you with many benefits like getting fewer monthly payments, saving thousands of dollars on interests, getting lower installments and reducing your overall debt exposure.
Refinancing: Concept
As you probably know already, refinancing consists on acquiring a mortgage loan in order to repay an outstanding mortgage. This can be done because the loan contract specifies that the money will be used to cancel the outstanding loan so the new loan will be the primary beneficiary of the security.
The home equity loan is, in this case, also replaced with the new loan and the new loan amount will be determined by adding up the previous mortgage loan amount and the home equity loan amount.
Saving Money? Getting Ease?
By refinancing you can save thousands of dollars on interests. Home equity loans generally come with higher interest rates than mortgage loans and thus, by obtaining a lower rate refinance home loan you will not only be saving money on your mortgage loan but you’ll also be saving even more money on your home equity loan.
Also, by refinancing you’ll unify both loans and get a longer repayment program and lower monthly payments. The resulting loan installments will be undoubtedly lower than the combination of mortgage loan payments and the home equity loan payments. Thus, even if you are indebted for a longer period of time you’ll get a lot of ease on your financial situation and income.
Refinancing other debt: Cash-out Refinance Loans
A cash out refinance loan is a refinance loan with a higher amount than the outstanding mortgage loan and in this particular case than that of the mortgage loan and home equity loan combined. Once both loans are cancelled, the surplus can be used for any purpose you may think of, including reducing your overall debt.
If you have other debt like credit card balances, personal unsecured loans, pay day loans, student loans, car loans or any other loan, you can use this surplus to cancel your debt and thus, you’ll be saving money due to the lower interest rate that refinance mortgage loans feature.
This will improve your overall credit situation raising your credit rank and improving your credit history. Your debt to income ratio will also be improved just as your debt exposure. Using a cash-out refinance loan in this way is a smart thing and will do a lot to enhance your whole financial situation. Your ability to get finance will also increase since on your credit report, only a single outstanding and affordable loan will show.
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