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Why refinancing your home equity loan could make sense now

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By
Matt Richardson
Sr. Managing Editor, Managing Your Money
Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
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Matt Richardson

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Refinancing a home equity loan could result in big savings for homeowners now. Getty Images

A home equity loan offers multiple advantages in today's economy. Thanks to elevated home prices, the average homeowner now has over $300,000 worth of equity to potentially borrow from. And despite interest rates in the double digits range for personal loans and near a record high for credit cards currently, rates on home equity loans are well under 10% – and falling. Plus, rates on home equity loans are fixed, allowing borrowers to accurately budget their repayments while also providing security during an otherwise volatile interest rate climate.

That all noted, a fixed-rate home equity loan doesn't have to mean a fixed, permanent approach to borrowing from your home equity. There are some signs that refinancing the loan could make sense, especially in today's climate, in which inflation is cooling and interest rate cuts have been issued. Against this evolving backdrop, then, it's worth determining if a home equity loan refinance could be valuable for you now. Below, we'll break down three reasons why it may be.

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Why refinancing your home equity loan could make sense now

Here are three reasons why this April could be a smart time to refinance your home equity loan:

You can save on monthly costs

Traditionally, a refinance is worth securing if you can obtain an interest rate a full point lower than what you currently have on your loan. And while that may not be the exact case for recent home equity loan borrowers, it will be close. Rates on a 15-year home equity loan were averaging 9.08% in January 2024, according to historic data. 

Now, rates on that same loan term are just 8.44%, knocking off 64 basis points from what you may currently be paying if you took out a loan in early 2024. That may not seem like a lot on paper, but it could add up to significant savings when spread over the 15-year repayment period. So, calculate your potential savings opportunity now; it may be more than you thought.

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You want to take advantage of HELOC rate drops

As attractive as a fixed interest rate may be, existing home equity loan borrowers may be frustrated by that feature now that rates on home equity lines of credit (HELOCs) have been consistently declining. Down around two percentage points just in the last six months, existing HELOC users have seen their repayment costs drop independently, with no work needed on their behalf. 

Home equity loan users, however, have been saddled with the same interest rate they opened their loans with in the past. In this scenario, and with the understanding that HELOC rates are likely to continue to fall this April, perhaps even below 8%, home equity loan borrowers may want to take advantage of HELOC rate drops by refinancing their loan into the line of credit, instead.

You need additional funds

If your financial needs have changed, and they may have thanks to stubborn inflation, higher interest rates for longer and stock market uncertainty, you may need additional funds than you initially anticipated. In these instances, refinancing into a larger loan term, hopefully with a lower rate, could make sense. 

And if your home's value has risen since your initial securing of the loan, you may even have more equity to work with than you first did. Just be sure to not overborrow, either, as failure to repay your loan could cause your homeownership to be jeopardized (you could lose it back to the lender).

The bottom line

Borrowing from your accumulated home equity with a home equity loan should always be done strategically and with caution. But that extends to knowing when it's time to refinance your loan, too. For many homeowners, that could be now. With home equity loan rates on the decline, HELOC rates seemingly falling each week and new needs for funding in the face of economic uncertainty, this could be the smart time to refinance your home equity loan and improve your overall financial health.

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Edited by Angelica Leicht

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