Refinancing Small Loans

Added December 24, 2004 by Ilyce R. Glink

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Summary: Lenders typically don't like to refinance low-cost mortgages because they take just as long but the lenders make a fraction of the money on them. If you still have time left to pay off the loan, taking out a home equity loan to pay off the balance of the loan might be a better option than refinancing. If there isn't much time left on the loan, it may not be worthwhile to refinance it.

Q: I have a mortgage loan that is an investment property. The loan is for less than $50,000. I want to refinance it, but the lenders I have talked to stated they cannot refinance a loan that small.

What should I do?

A: Lenders typically don't like to refinance low-cost mortgages because they take just as long but the lenders make a fraction of the money on them.

If you still have a significant amount of time left to payoff the loan, instead of refinancing, consider taking out a home equity loan for the balance of the loan. You should be able to do this easily and cheaply since the home equity business is extremely competitive (even on an investment property) and many lenders offer "instant" home equity loans for $30,000 at great interest rates with zero points and fees. If there is little time left on the loan, it may not be worthwhile refinancing the loan unless you are looking to keep a loan on the property.

I think if you pursue a home equity loan, you'll get a much better deal and will be able to close quickly. You can use the proceeds to pay off your mortgage and then use your savings to quickly pay down the home equity loan. If the interest rate on your current loan is quite high, make sure that any equity loan you obtain reaps you the benefits of lower interest rates over the long term.

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