So I did something last month that I’ve been thinking about for almost a year. I decided to refinance home equity loan that I took out three years ago, and honestly, I wish I’d done it sooner. The amount of money I’m gonna save is pretty crazy, and the whole process was way easier than I expected.
Let me back up and explain my situation. Three years ago, we took out a home equity loan for $65,000. Needed a new roof – $22,000. Wanted to finish the basement – $31,000. And we had some credit card debt we wanted to pay off – about $12,000. The rate we got back then was 9.2%, which seemed fine at the time because we didn’t really shop around much. Just went with our bank because it was convenient.
Monthly payment on that loan was $687. Not terrible, but not great either. We’ve been paying it for three years now, and the balance is down to around $55,000. Then my buddy Chris mentioned he’d just refinanced his home equity loan and dropped his rate by almost 2%. That got me thinking – maybe I should look into this too.
Didn’t Even Know You Could Refinance Home Equity Loans
Here’s the embarrassing part – I didn’t even know you could refinance home equity loan debt. Like, I knew you could refinance your regular mortgage, obviously. But for some reason I thought home equity loans were just stuck at whatever rate you got. Shows how much I knew about this stuff.
Started Googling it one night after Chris mentioned it. Turns out yeah, you can totally refinance a home equity loan. It’s basically the same as refinancing any other loan – you get a new loan at a better rate that pays off the old one. Some banks even let you borrow more money when you refinance if you need it.
Chris told me rates had dropped quite a bit since three years ago. He said I should check what I could get now. It sounded like it might be worth looking into, so I started calling around.
Shopping Around Was Actually Pretty Easy
Called three different lenders – our current bank, a credit union my coworker recommended, and one of those online lenders. Gave them all the same info – how much we owed, our credit scores, house value, income, all that stuff.
Our current bank came back first. They offered 8.1% to refinance home equity loan. That’s 1.1% lower than our current 9.2%, which would save us about $75 a month. Not bad, but I wanted to see what the other places said before deciding.
The credit union came back the next day. They offered 7.4%. Now we’re talking. That would drop our payment by almost $140 a month compared to what we’re paying now. I was pretty excited about that.
The online lender took a few more days but came back with 7.6%. Little higher than the credit union but still way better than our current rate. Also, they had lower closing costs – only about $800 compared to $1,600 at the credit union.
Ended up going with the credit union even though their closing costs were higher. The lower rate would save us enough that we’d make up the difference in closing costs within like six months. After that, it’s all savings.
The Application Process Wasn’t Bad
I thought applying to refinance home equity loan would be a huge pain with tons of paperwork. It really wasn’t that bad though. Definitely easier than when we got our original mortgage.
Had to provide recent pay stubs, last two years of tax returns, bank statements, and proof of homeowners insurance. They also needed our current home equity loan statement showing the balance. The credit union pulled our credit reports themselves.
They did a new appraisal on the house. Some guy came out, walked around for maybe 30 minutes, took a bunch of pictures. Our house appraised at $398,000, which was actually higher than we thought. We bought it for $285,000 back in 2017, so that was nice to see.
The whole thing from application to closing took about five weeks. They said it could’ve been faster but there was some delay with getting the appraisal scheduled. Whatever, five weeks wasn’t bad at all.
How Much We’re Actually Saving
Here’s the money part that really matters. At 9.2%, we were paying $687 a month. New rate at 7.4% means our payment is now $547 monthly. That’s $140 a month savings, which is $1,680 a year.
But the real savings is in total interest over the life of the loan. On our old loan, we would’ve paid about $27,400 more in interest over the remaining 11 years. With the new loan at 7.4% for 12 years we extended it a bit, we’ll pay about $18,900 in total interest. Even with paying one extra year, we’re saving like $8,500 in interest.
Plus the closing costs were $1,600. So even after those costs, we’re still coming out way ahead. The decision to refinance home equity loan made total sense financially once I saw these numbers.
Things I Learned About Refinancing Home Equity Loans
First thing – you don’t have to refinance with your current lender. I thought maybe we were stuck with our bank since they gave us the original loan. Nope. Any lender can refinance it as long as you qualify.
Second – your credit score matters a lot. When we got our original loan three years ago, my credit score was around 680. Now it’s 745. That better score helped us get a much better rate this time. If your credit’s improved since you got your home equity loan, you might qualify for way better rates now.
Third – you can change the loan term when you refinance. Our original loan had 14 years left on it. We could’ve kept it at 14 years, or gone shorter, or longer. We chose 12 years because the payment was still comfortable and we liked the idea of being done with it sooner.
When Refinancing Makes Sense
Talking to the loan officer at the credit union, she explained when it makes sense to refinance home equity loan debt. She said generally you want at least a 1% rate drop to make it worth the closing costs and hassle. We got a 1.8% drop, so it was definitely worth it.
She also said it depends how long you’re keeping the loan. If you’re planning to pay it off in the next year or two anyway, refinancing might not save you enough to cover the closing costs. But if you’ve got several years left like we did, the savings add up.
Another thing – your home value matters. We needed to have enough equity in the house for the lender to approve the refinance. Since our house went up in value and we’d been paying down the loan, we had plenty of equity. If your home value dropped or you haven’t paid much principal yet, you might not qualify.
Was It Worth The Effort?
Absolutely yes. The whole process took maybe 10 hours of my time total – calling lenders, gathering documents, doing the appraisal, going to closing. For $140 a month savings and $8,500 total savings, that’s time well spent.
My only regret is not looking into it sooner. I could’ve been saving this money for the past year if I’d just checked rates earlier. But whatever, I’m saving it now.
If you’ve got a home equity loan and haven’t looked at rates lately, seriously consider it. The decision to refinance home equity loan was one of the best financial moves I’ve made. Takes a little effort but the payoff is real.
My Advice If You’re Thinking About It
Check current rates even if you think yours is probably fine. I thought 9.2% was just normal for home equity loans. Turns out I could get way better.
Get quotes from at least three lenders. Don’t just go with your current bank. Shop around. The rate difference between lenders was pretty big – like a full percentage point.
Look at total interest, not just monthly payment. Yeah, lower payment is nice, but total interest over the life of the loan is what really matters.
If rates have dropped since you got your loan, refinancing probably makes sense. Don’t overthink it like I did for a year. Just get some quotes and see what you can save. Worst case, the rates aren’t better and you’re out like an hour of your time. Best case, you save thousands of dollars like I did.
