I screwed up pretty bad four years ago. Got a home equity loan without really understanding what I was doing, and ended up with a terrible rate. Paid way too much for way too long before I finally figured out I could fix it.
She wanted this big fancy thing – $35,000 for the whole event. We had some savings but not enough. Figured we’d borrow against the house since we had plenty of equity built up over the years.
I went to the first bank I saw, filled out some forms, and they approved us. The rate was 10.8%. I didn’t even question it. Just thought that’s what home equity loans cost. Signed the papers, got the money, paid for the wedding. I didn’t think about it much after that.
I Didn’t Know My Rate Was That Bad
Here’s the thing – I had no idea 10.8% was a bad rate. Like I said, I just assumed that’s what these loans cost. My son-in-law pulled out his phone and showed me current rates were more like 7% to 8% for people with decent credit. I felt like an idiot.
He explained I probably got hit with a high rate because I didn’t shop around. That first bank saw I was in a hurry and needed the money, so they gave me whatever rate they wanted. And I just took it because I didn’t know any better.
Started Looking Into Refinancing Right After The Holiday
Monday after Thanksgiving, I started calling lenders. Told them I wanted to refinance home equity loan and asked what rates they could offer. Still owed about $28,000 on the original $35,000 loan.
The first place I called was a credit union my brother uses. The lady there was super helpful, and didn’t make me feel stupid about my current rate. She said lots of people end up with high rates when they don’t shop around. Made me feel a little better.
She ran my credit and said I qualified for 7.3%. I almost fell over. That’s 3.5% lower than what I was paying. She calculated my payment would drop from $412 a month to $318. That’s $94 a month I’d been basically throwing away for three years.
The Refinancing Process Was Pretty Quick
Honestly thought it would take forever to refinance home equity loan. Figured there’d be tons of paperwork and waiting. Really wasn’t that bad though.
Credit unions needed recent pay stubs, tax returns, bank statements. I had to get a new appraisal on the house.
They also looked at our credit reports and verified we were current on all our payments. My credit score was 712, my wife’s was 728. Both are good enough to qualify for their best rates.
How Much Money I Wasted By Waiting
This is the part that still bugs me. At 10.8%, I was paying $412 monthly. Over three years, that’s $14,832 total payments. Of that, about $5,100 was interest.
If I’d gotten a 7.3% rate from the start, I would’ve paid closer to $3,200 in interest over those same three years. So I basically wasted almost $2,000 by not shopping around initially and another year by not refinancing sooner after my son-in-law told me about it.
With the new rate at 7.3%, my payment dropped to $318 monthly. That’s $94 a month back in our pocket. Over the remaining life of the loan – about eight more years – I’ll save roughly $11,000 in interest compared to if I’d kept the old rate.
What I Learned About Home Equity Loan Rates
I talked to the loan officer at the credit union a lot during this process. She explained how home equity loan rates work, which I definitely didn’t understand before.
She said rates depend on your credit score, how much equity you have, your income, and whether you shop around. People with great credit can get rates in the low 7s or even high 6s sometimes. People with okay credit might get mid to high 7s. And people who don’t shop around might get stuck with rates in the 9s or 10s like I did.
The decision to refinance home equity loan should happen whenever you can get a rate that’s at least 1% lower than your current rate, she said. The closing costs usually get covered by the savings within a few months if the rate drop is that big.
Why I Waited So Long To Fix This
But that’s what happened.
Also, I kept thinking it would be really complicated to refinance home equity loan.
Would’ve saved us another thousand dollars or so if I had. But whatever, at least I fixed it eventually.
Red Flags I Missed With My Original Loan
Looking back, there were signs I got a bad deal that I just ignored. The bank approved us really fast – like the same day. That should’ve been a red flag that they weren’t being very careful with the rate they gave us.
When I went to refinance home equity loan at the credit union, the difference was huge.
My Advice After Going Through This
Don’t make my mistake. Shop around before you get any loan. Call at least three places, get quotes from all of them, compare the rates and fees. Takes a few hours but can save you thousands.
If you already have a home equity loan and aren’t sure if your rate is good, just check current rates online. It takes five minutes. If your rate is more than 1% higher than what’s available now, you should probably refinance home equity loan asap.
How Things Are Now
It has been about eight months since we refinanced. Paying $318 instead of $412 every month feels great. That extra $94 mostly goes into savings now, which is nice.
The decision to refinance home equity loan was probably the smartest financial move I’ve made in years. I just wish the smartest move hadn’t been fixing a dumb move I made earlier. But hey, at least I fixed it eventually.
