Disclaimer: This is not a Citi product and is provided for educational purposes only.  Citi may have different eligibility and/or product offerings than those mentioned on mortgage.com. Citi only offers Home Equity Lines of Credit.

Before we dive into what a home equity loan is, let's talk a bit about loans and lien positions. So, when you take out a loan to buy a house, that loan is in the first lien position, meaning it gets paid off first if you ever default.

Now, if you want to pull out some cash from your home's equity, you've got a few options: you can do a cash-out refinance, which replaces your current mortgage with a new, bigger one and gives you the difference in cash. Or, you can get a home equity loan or a home equity line of credit (HELOC), both of which sit behind your first mortgage in the second lien position.

Alright, so what exactly is a home equity loan? It's a loan where you use the equity you've built up in your home as collateral. It's like taking out a second mortgage. There are two main types of home equity loans: the standard home equity loan, which gives you a lump sum of money up front that you pay back in fixed monthly payments, and the HELOC, which works more like a credit card where you can borrow money as needed up to a certain limit and pay it back with variable interest rates.

Indeed, you can refinance a home equity loan. It's all about swapping your current loan for a new one with different terms. You'll use your new loan to clear the old one and then start making payments on the fresh loan. Don't forget—you'll still need to keep up with your primary mortgage payments, too. It's a move to consider if you're looking to snag some better loan conditions.

Home equity loan refinancing requires a watchful eye. Predicting exactly when rates will drop is akin to timing the stock market—tricky and often unpredictable—but staying on top of economic trends and talking with your financial advisor can provide clues. Typically, interest rate changes follow broader economic patterns, so if you hear news of policy changes on the horizon, it might be time to consider refinancing. Additionally, focus on two personal financial indicators:

Increased home value: an increase in your home's value can improve your loan-to-value ratio, potentially qualifying you for better rates.

Improved credit score: a higher credit score can make you appear as a lower credit risk, which might also lead to more favorable interest rates.

Both factors can significantly influence the decision and benefits of refinancing your home equity loan.

Why refinance now? Perhaps rates have dipped or your credit score has surged (Great job!). If you’re in a good position, why not explore your options? Here are some common reasons to refinance:

• Interest rates: If rates are lower than when you secured your original loan, refinancing could be an option to consider.
• Credit score: A boost in your credit score can unlock better loan terms. It's worth checking out what you qualify for.
• Loan terms: Modifying your loan term can make your monthly payments more manageable, or even accelerate your payoff schedule.
• Home equity: Refinancing might allow you to unlock the equity in your home, freeing up funds for other expenses.

Before going down the refinancing route, let's make sure you’re set to impress the lenders.
Here’s your quick checklist to shine in the refi spotlight:

• Boost your credit: The better your score, the sweeter the potential deal. Aim high!
• Equity: When refinancing, lenders typically require you to have a certain amount of equity in your home, often at least 20%. More equity means more options. It’s that simple.
• Prep your paperwork: Time to dig up those pay stubs, tax returns and bank statements. (Yes, again.)
• Get the lowdown on your loan: Brush up on your current loan details and payoff amounts to know exactly where you stand. With all of this in place, you’re ready to explore your options.

When it comes to refinancing a home equity loan, underwriters look at several specific factors to determine whether to approve the application:

• Loan-to-value ratio (LTV): This is a measure of how much you currently owe on your home compared to its value. Underwriters typically prefer a lower LTV because it indicates less risk. For refinancing, a maximum LTV of 80% is common, though this can vary depending on the lender and the type of loan.
• Credit score: Underwriters examine your credit score to gauge your creditworthiness. A higher score suggests you’re a lower risk with a history of managing credit responsibly. Underwriters will look for a credit score of at least 620, but for more competitive rates and terms, a score of 700 or higher is advantageous.
• Debt-to-income ratio (DTI): This ratio compares your total monthly debt payments to your monthly income. It helps underwriters assess whether you can afford the new loan payments. A DTI ratio of 43% or lower is typically required, though some lenders may have stricter or more lenient criteria.
• Income verification: Underwriters will verify your income to ensure it is stable and sufficient to cover the new loan payments. This involves checking documents such as pay stubs, tax returns and employment verification.
• Employment history: A stable and consistent employment history reassures underwriters of your ability to repay the loan. They typically look for at least two years of steady employment in the same job or field.
• Payment history: Your history of making timely payments on existing debts, including your current mortgage, credit cards and other loans, is critically important. Underwriters use this information to evaluate your financial reliability.
• Home appraisal: An appraisal provides an updated value of your home, which is essential for calculating the LTV ratio. Underwriters use this figure to ensure that the loan amount does not exceed the value of the home.
• Cash reserves: Some underwriters may also check for cash reserves—the liquid assets you have on hand after closing the loan. This serves as a safety net and indicates that you can still make loan payments in case of financial difficulties.

By carefully evaluating these factors, underwriters determine the likelihood that you will be able to repay the refinanced loan, thereby minimizing the risk to the lender.