Can You Refinance Home Equity Loans? eHow

By Ciaran John, eHow Contributor

Home equity loans are mortgage products, and as with regular mortgages you can refinance home equity loans. You can replace a home equity product with another equity loan or refinance into a conventional mortgage. However, you can only refinance your loan if you have good credit, sufficient income and some equity in the home.

1. • To refinance your home equity loan with a conventional mortgage, you need to have at least 20 percent equity in the property. Some lenders allow you to refinance if you have less than 20 percent equity as long as you purchase private mortgage insurance that insures your lender against the risk that you default on the loan. Maximum loan-to-value (LTV) ratios on home equity products vary from lender to lender, but some banks allow you to refinance with an LTV of 100 percent.

   • With a mortgage, your closing costs can often amount to several thousand dollars. You do not normally pay closing costs on a home equity loan, but banks typically pay these costs on your behalf. However, many banks recoup this cost if you pay your loan off within a certain number of years. Therefore, you should check with your lender to see if you have to pay closing costs on your existing loan when you refinance it.

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• If you want to refinance your home equity so that you can extract more equity from your home, you should ask your current lender if you can do a loan modification. Lenders can modify the terms of an existing loan agreement in a number of ways including making modifications to the loan amount. If you modify your existing loan rather than take out a new loan your lender may not require a new appraisal and that can save you time and money.

• Equity loans typically have 10 or 20 year terms, so you can lower your monthly payment by refinancing into a 30-year mortgage. However, this also means that you ultimately pay more interest since you enable your principal to accrue interest for a longer period of time.

  If you are more concerned about the total cost of the loan you can ask your lender for a cost comparison that shows your current loan, a scenario where you refinance with a conventional mortgage and a scenario where you refinance with a new home equity loan. Add together the closing costs and payments to see which loan ultimately offers you the least expensive option.