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Determining Your Home’s Refinancing Worth

by Kristi  Shibata
Mortgage Directory Columnist

Your home is considered your largest asset, which makes it very tempting to use the equity to fund large projects such as home improvements and higher education. But before you dip into equity, decide whether a home equity loan is right for you.

Qualifying for a Home Equity Loan

Setting up a home equity plan is much like signing up for a credit card. Based on your financial background, you are qualified to borrow a specific amount of credit. With a home equity loan, you can repay that amount over a fixed period of time, like a mortgage. If you prefer more flexibility, a home equity line of credit allows you to borrow at any time during a fixed period. With both options, your home equity serves as your collateral.

Most lenders determine your credit potential by subtracting the balance remaining on your current mortgage from a percentage of your home equity. Your lender also takes into account your repayment ability such as:
  • Income
  • Debt
  • Financial obligations
  • Credit history

Understanding the Risks in Refinancing Your Home Mortgage

Taking out a home equity loan is much like purchasing a home, with certain fees and costs. Be prepared for fees for an appraisal, application, and for closing costs. If you refinance using home equity, find a plan that meets your borrowing needs.

It is also equally important to set up a repayment plan. Just remember that your home is your collateral, so if you are unable to make your payments, you risk the chance of losing your largest asset.

Sources About the Author
Kristi Shibata is a public relations and communication specialist and regular Mortgage Directory columnist. She graduated from University of California, San Diego, with a BA in Communications.

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