What is your home equity? It’s simply the difference between how much your house is worth according to the latest appraisal and how much you still owe the bank. Your home equity increases over time as you pay down your mortgage and as the value of your home appreciates. The value of your home is based on a professional appraisal and takes into consideration the condition of your home, the neighborhood, the type of property, size, land evaluation, taxes other loans and services, and the current market value. Home equity loan refinancing will depend upon the increase in equity to determine how much money you can borrow.

You can benefit from a home equity loan refinancing plan compared to other types of loans because these loans are secured. That means that the lender may be able to repossess your home if you fail to pay. This helps lenders in home equity loan refinancing plans to give you a lower interest rate than if you did not already have any equity and had to get an unsecured loan. The minimum equity should be at least 30 percent.

Some types of home equity loan refinancing:

Home Equity Loans: These are second mortgages that are secured with the equity of your home. They usually offer fixed interest rates that are lower than the interest rates established on your home mortgage. In many cases the interest payments on the principal are tax deductible. Various terms of financing are generally available.

Cash-Out refinancing: This is a loan that replaces your existing loan and offers either an adjustable or a fixed interest rate. This loan gives you the opportunity to take out some money based upon the accumulated equity built up in your home.

HELOC: Home equity line of credit is a second mortgage with an adjustable rate. You can borrow in a lump sum or in installments. Your payments and interest will be based upon the actual amount that you borrowed, not on the full amount of the line of credit. Your have a running line of credit meaning that if you pay back what you have borrowed or part of what you have borrowed, the borrowing amount will readjust so that you will have that money to borrow again.

Streamlined Home Equity line of Credit: This arrangement offers a running line of credit based on the equity of your home but without many of the usual refinancing loan requirements, such as income verification and perfect credit standing. There is less paperwork, and the loan is issued faster. These loans are mainly offered to homeowners already dealing with the same bank or mortgage institution for their first mortgages.

Don’t neglect to consider the disadvantages of home equity loan refinancing. You are securing the loan with your home as collateral. If you fail to make the payments, you may lose your home. Market values are always changing, and now they’re actually declining in many parts of the U.S. If your home declines in value after you take out your home equity loan refinancing, you may end up with negative equity in your property.

Consider also the purpose of your loan. Remember that renovations will add to the value of your home, and therefore increase your equity. But if you’re using the cash for credit card consolidation, you can possibly save with lower payments to begin with, but you may end up having to make monthly payments for longer than it would have taken you to pay off the credit cards or other debts.

For more information and to compare refinancing loan offers from lenders who compete for your business, visit our resource page on comparing home loans.