How to Refinance a Home Equity Loan

Refinancing a home equity loan can help ease financial stress.
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A home equity loan can give you access to the cash you need to cover a wide variety of expenses. But if monthly payments are breaking your budget, refinancing could be an option that lowers your interest rate and monthly payments. Refinancing is not an option for everyone, and poor credit can make it impossible, but many banks are willing to work with borrowers to refinance a loan.

Step 1

Contact several lenders and ask about their refinance options. The interest rates and closing costs lenders offer vary, and the cost you pay to refinance can hurt your bottom line. Choose lenders with minimal closing costs, and ask in advance what factors affect interest rates. Then choose the deal that works for you. Applying with several different lenders can hurt your credit, so you should shop before applying.

Step 2

Check your credit report for any errors. You can get a free credit report from each credit bureau once per year, or pay for a credit report from the credit bureaus. Your credit can affect your approval and interest rate, so make sure your report is accurate before refinancing. If there are negative items on your report, work to pay back the debts and clean up your credit before applying. Making larger payments on your credit cards, making timely payments and paying off outstanding debts all can improve your credit.

Step 3

Gather documents evidencing your income. You'll likely have to provide at least two years of tax returns, and may have to provide pay stubs or your bank account information. If your income varies from year to year, you may need to show evidence that you have savings and can pay monthly payments even if your income drops.

Step 4

Apply for the loan. You'll need to provide information about your home, as well as your Social Security number and pay documentation. Some lenders require a home appraisal before they decide whether to offer the loan. You can apply in person at the bank, over the phone or online. After you've been approved, you'll need to sign the contract, and your refinance won't be complete until it closes.

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