removing henna?

There are apparently different kinds of henna.  The body art quality kind is apparently permanent and doesn't fade (haven't tried it myself but read about it here recently).  If your henna color faded you probably didn't use that kind, and used the kind with other additives in it.  That kind I do have experience with, and it usually fades in 2 months or so.  I believe what you do with the mineral oil is just put it on your hair for an hour or so, then wash it out.  This small treatment one time won't hurt your hair, and is probably worth doing to make sure you've really gotten as much henna out as you can. 

 If you click the link in my signature and go to my hair journey, you can see photos of what happened after I henna'd bleached hair (yes I know I shouldn't have done that, yes it turned green), then dyed over it, and how it washed out in a week.  The only problem with dying over henna is that the henna prevents the dye from reaching the hair shaft.  So, the worst thing that can happen is the dye doesn't take, and washes out in a week even if its permanent dye.  However, if you've only henna'd your natural hair, and if its been that long and the color is gone, I'd just do the mineral oil then I think you're probably okay. 

Using chemical dyes is going to give you some damage, just use them in moderation!  I'm not familiar with extensions but from what I've seen, it seems like once people start using them they don't seem to stop.  I don't know if its because extensions are great or because they can't because of hair loss/damage.  I would research very well on the extension forum to make sure you know exactly how much damage you may be in for, and to find if there is a least damaging way to get them before going that route.

Edited to say:  Be sure to wash the mineral oil out very well before dyeing it, as that residue may have an effect, then wait a day or two before dyeing it to let your scalp's oil come back to help protect it from the chemicals.