Home Equity Refinance
In plain and simple terms, Home Equity Loan is a loan
taken by keeping the home as collateral. The purpose of the
loan may be as varied as paying off high credit card dues,
medical expenses, college tuition fees and anything you can
think of. In case of a non-payment of the earlier dues by
normal means, the next consideration is getting a good home
equity refinance deal.
One of the major benefits of home equity refinance is that
as the interest is given on the home loan there are chances
that the amount will be exempted from tax.
The reason for a home equity refinance is not always
problem in paying off the first loan. It might be a case of
better rates that are prevalent. In the process, the borrower
gets the chance of saving some money by getting a beneficial
home equity refinance loan.
Advantages of Home Equity Refinance
# A refinance helps the borrower in getting a lump sum
amount of cash. The lump sum is solely at the disposal of the
borrower, whether he wants to use it on home renovation,
medical expenses or anything else.
# An existing loan might contain greater risk than a
refinance loan. Adjustable loan rates and mortgages have a
tendency to go up and down which is decided by various factors
controlled by prevalent market calculation. When there is a
favorable market interest rate it is better to shift to fixed
interest rate rather than sticking on with an adjustable rate;
since it reduces the chances of getting a low interest rate
during the home equity refinance tenure.
# In the United States people who do not pay the
Alternative Minimum Tax have greater chance of getting rebates
in tax while refinancing. Alternative Minimum Tax or AMT falls
under the Federal Income Tax system. Incomes from refinance,
deductions, credits, and certain other items are treated
differently from the regular tax.
Risks of Home Equity Refinance
#
One of the major problems associated with most fixed term
debts is that it contains certain penalty clauses. They are
also known as "call provisions". These fines are levied
whenever the payment of the loan is done before the stipulated
time. The payment might be in entire form or in portions but
it still qualifies for the penalty clause.
# Closing and transaction fees are also there to add to the
woes of home equity for those going for refinance. These fees
might be greater than any possible profits from a favorable
deal.
# There is a possibility of weak cash flow as well as
non-recurring compulsions.
# Some home equity refinance might have low initial
interest rates but crossing the life span of the loan the
interest cost escalates. What happens is that the borrower is
exposed to a greater risk than he was earlier with his
existing loan.
Home equity refinance needs a thorough calculation of the
up-front amount, and the deduction of possible pros and cons
of the lending process.
| 
