8 Things You Need to Know Before Refinancing or Home Equity Loan

Both refinancing and home equity loans give you an opportunity to get cash. At the same time, both options can be a great way to save money and get money, there are certain things you need to know before refinancing or home equity loan:
There is No Free Loan in the World

Don't be fooled by lenders who offer no closing cost refinance loans or home equity loans. There is no such thing as a free loan. If you don't pay the costs upfront, you will pay for them later on in the loan. While this may not seem so bad, you need to remember that you will also be paying interest on anything not paid upfront.

Introductory Rates Can Be Misleading

Sometimes known as "teaser rates", introductory rates look good on paper, but can be very misleading. Before being drawn into a loan with introductory rates, you should have a clear understanding of when the rate will adjust, what the rate cap is, and what your payment might be at its highest.
Loan Interests are Not Always Tax Deductible

Contrary to popular belief, the interest paid on a home equity loan or a refinance loan isn't always tax deductible. Before automatically assuming that you will be able to get tax savings, you should speak with a qualified accountant. An accounting professional will be able to look over your situation, as well as the potential loan to determine whether or not you are eligible for tax deductions.

Tax Assessment Aren't Genuine Appraisals

If you are thinking about getting a refinance loan or home equity loan, don't assume that the local tax assessor's appraisal represents the actual market value of your home. Tax assessments aren't genuine appraisals. Your home may be worth quite a bit more or quite a bit less than the amount indicated on your tax assessment. The only way to find out how much your home is really worth is to contact an independent real estate appraiser.
You Should Need a Good Reason to Get a Loan

It doesn't matter if you are considering a refinance loan or home equity loan; you need to have a good reason for spending the money it will take to close on the loan. Good reasons may include the need for a better rate and terms or the need for cash to consolidate debt or pay other outstanding bills. Whatever it is, make sure the loan will save you money in the long run, and more importantly, make sure you can afford the new loan payments.

Home Equity Loan Terms May Vary Time by Time

Like refinance loan terms, home equity loan terms can also vary. Some loans are adjustable rate options, while others are fixed. Term lengths can also fall all over the map, so it is a good idea to evaluate all of the options available to you before making any final decisions.
Refinance Terms May Vary Time by Time

Not every refinance loan is the same. Some have lower payments during the term and one final balloon payment at the end. Some terms last 30 years, while others only last 15. If you will be getting a refinance loan, make sure the terms will be manageable for you.

Need to Compare the Fees

When most people are looking for a refinance or a home equity loan, they compare interest rates. While this is a smart thing to do, interest rates aren't the only thing that should be focused on in the comparison process. Because lending fees and closing costs can vary from lender to lender, you also want to take time to make comparisons between these variables.

 1 Sep 2008

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Source: http://www.refinance-database.com