Shopping for a mortgage can be intimidating. It’s natural to feel anxious about doing something new for the first time, and getting your first mortgage is no exception.
Fortunately, there are a few simple things you can do to make sure you’re being well-prepared before you start looking for your first home loan. Here are five tips to help first-time mortgage borrowers.:
1. Lock Your Interest Rate. Interest rates on mortgages can increase or decrease from day to day or even hour to hour. Discuss the interest rate outlook with your loan officer and try to learn as much as you can about how ups and downs in interest rate quotes might affect your mortgage payment and your ability to qualify for that loan. To protect yourself from interest rate rises, ask about a rate lock, which can reserve a specific interest rate for you for a set time period. If you decide to lock your rate, make sure your lock period won’t expire before your closing date. (Read more about locking your interest rate.)
2. Consider FHA. If you’re a first-time home buyer, you might want to shop for an “FHA loan,” which is a mortgage that’s insured by the Federal Housing Administration (FHA). FHA loans offer competitive interest rates, allow smaller down payments and have easier qualification guidelines compared with other types of loans. The minimum down payment for an FHA loan is just 3.5 percent of the purchase price of the home, although FHA loans do require that you pay mortgage insurance.
3. Take the Tax Credit. If you haven’t owned a home in the past three years, you may be able to qualify for the federal First-Time Home Buyer Tax Credit, which is worth up to $8,000. The credit is refundable, which means you’ll even get a rebate of sorts from the federal government if the income tax that you owe is less than the full amount of the credit. The credit is subject to income limitations and you’ll have to act fast since it’s set to expire after Nov. 30, 2009. Some lenders may allow you to use the credit as a down payment, to pay settlement fees or other closing costs or to pay discount points to reduce the interest rate on your loan.
4. Educate Yourself. A plain-vanilla 30-year or 15-year fixed-rate mortgage is fairly easy to understand. But other types of loans can be more complicated. If you want to consider an adjustable-rate mortgage (ARM) or other less common type of loan product, do your homework and make sure you fully understand how your loan works before you sign the loan documents.
5. Shop Around. Interest rates, loan products and loan terms vary among lenders. That means all borrowers, whether novice or not, should shop around for loan offers. Ask about the benefits and risks of each loan and be sure to compare the quoted points and estimated closing costs as well as the interest rates on different loans before you decide which would best fit your personal situation.
Showing posts with label Refinance. Show all posts
Showing posts with label Refinance. Show all posts
Monday, February 22, 2010
Home Refinancing Basics
Before you refinance, know the pitfalls as well as the advantages
In recent years, millions of homeowners have taken advantage of low rates and refinanced their mortgages. This article describes the advantages and possible pitfalls associated with a "refi."
Before You Start:
- Remember that refinancing to reduce debt can be a smart move, but refinancing in order to borrow more for consumer purchases (car, vacation, etc.) could set you back significantly.
- Read the fine print on your current mortgage to learn whether you'll be assessed penalties or fees for "getting out" of that loan early.
- Make sure you know whether you have a fixed or variable interest rate and what the terms are.
Home Refinancing Basics
In recent years, Americans seeking to take advantage of low interest rates have lined up to refinance their mortgages. In fact, refinancing hit an all-time high in 2003, and remained high in both 2004 and 2005, according to the Mortgage Bankers Association of America.But while it's true that refinancing has the potential to help you reduce the costs associated with borrowing money to own a home, it is not necessarily a strategy that makes sense for every individual in every situation. So before you make a commitment to refinance your mortgage, it's important to do your homework and determine whether such a move is the right one for you.
To Refinance or Not
The old and arbitrary rule of thumb said that a refi only makes sense if you can lower your interest rate by at least two percentage points for example, from 9 percent to 7 percent. But what really matters is how long it will take you to break even and whether you plan to stay in your home that long. In other words, make sure you understand - and are comfortable with - the amount of time it will take for your overall savings to compensate for the cost of the refinancing.Consider this: If you had a $200,000 30-year mortgage with an 8 percent interest rate, your monthly payment would be $1,468. If you refinanced at 6 percent, your new monthly payment would be $1,199, a savings of $269 per month. Assuming that your new closing costs amounted to $2,000, it would take eight months to break even. ($269 x 8 = $2,152). If you planned to stay in your home for at least eight more months, then a refi would be appropriate under these conditions. If you planned to sell the house before then, you might not want to bother refinancing. (See below for additional examples.)
Remember: All Mortgages Are Not Created Equal
Don't make the mistake of choosing a mortgage based only on its stated annual percentage rate (APR), because there are a variety of other important variables to consider, such as:The term of the mortgage - This describes the amount of time it will take you to pay off the loan's principal and interest. Although short-term mortgages typically offer lower interest rates than long-term mortgages, they usually involve higher monthly payments. On the other hand, they can result in significantly reduced interest costs over time.
The variability of the interest rate - There are two basic types of mortgages: those with "fixed" (i.e., unchanging) interest rates and those with variable rates, which can change after a predetermined amount of time has passed, such as one year or five years. While an adjustable-rate mortgage (ARM) usually offers a lower introductory rate than a fixed-rate mortgage with a comparable term, the ARM's rate could jump in the future if interest rates rise. If you plan to stay in your home for a long time, it may make sense to opt for the predictability and security of a fixed rate, whereas an ARM might make sense if you plan to sell before its rate is allowed to go up. Also keep in mind that interest rates hovered near historical lows in recent years and are more likely to increase than decrease over time.
Points - Points (also known as "origination fees" or "discount fees") are fees that you pay to a lender or broker when you close the deal. While a "no-cost" or "zero points" mortgage does not carry this up-front cost, it could prove to be more expensive if the lender charges a higher interest rate instead. So you'll need to determine whether the savings from a lower rate justify the added costs of paying points. (One point is equal to one percent of the loan's value.)
Stick With What You Know?
Finally, keep in mind that your current lender may make it easier and cheaper to refinance than another lender would. That's because your current lender is likely to have all of your important financial information on hand already, which reduces the time and resources necessary to process your application. But don't let that be your only consideration. To make a well-informed, confident decision you'll need to shop around, crunch the numbers, and ask plenty of questions.Summary:
- The decision to refinance should only be made if the long-term savings outweigh the initial expenses. To calculate your break-even point, divide the cost of the refi by your monthly savings. The resulting figure represents the number of months you will need to stay in the home to make the strategy work.
- Don't select a new mortgage based only on its annual percentage rate.
- Also evaluate the term of the loan, whether the interest rate is fixed or variable, and the relative merits of paying up-front fees in exchange for a lower rate.
- Your current lender already knows you and has your financial information on file, so you may be able to get a better deal that way, instead of going to a new lender.
- To get the best possible refinancing deal, you'll need to shop around, crunch some numbers, and ask a lot of questions.
Checklist:
- Shop around and conduct a detailed cost assessment (with a financial professional, if necessary) to identify which mortgage offers the greatest financial benefits.
- Read the entire contract before signing. Don't let anyone pressure you or rush you to make a hasty decision.
- If refinancing results in lower monthly payments, use those savings to pursue other important goals, such as preparing for retirement and college costs.
Thursday, November 12, 2009
Bad Credit Mortgage Refinance
You Can Lower your Debt Even if you have Bad Credit
You’ve heard the commercials: “Bad Credit? No Credit? No Problem!” but they might sound too good to be true for someone who might have had difficulty paying the mortgage and now has a poor credit score. It’s a frustrating feeling of being in a position to get behind on payments knowing your FICO score and your credit history will be adversely affected.
But there are ways to obtain help with paying the bills, get a lower interest rate on your mortgage or to even consolidate debt into a mortgage payment.
Home Equity Loans
Home equity loans can help homeowners who have experienced problems with bad credit. Home equity loans are mortgage loans that are secured by your home. This is something that you should consider very carefully if you have a history of not being able to meet your financial demands. If you default on a home equity loan, you can lose your home. However, this is an option to help you get caught up with debt and make other financial payments and also have some money available if you need home improvements.
Equity in a home is calculated by taking what you currently owe on your home and deducting it from what your home is worth according to a financial institution. If you have some equity built up in your home, you can quality to receive that equity in the form of a low interest home equity loan.
Lower Interest Rates
A bad credit mortgage refinance is possible even if you have a not-so-great FICO score. A bad credit mortgage refinance will help homeowners by allowing them to receive lower interest rate leading to a lower monthly mortgage payment. Take a good look at your current bills, especially your credit card bills. Sometimes your credit card bills can charge you exorbitant interest rates and additional high fees for late payments, over-the-limit payments and more. See what you are paying credit card companies and then adetermine if obtaining a mortgage refinance is possible. If it turns out that you will be saving hundreds of dollars on your mortgage payment by refinancing, then it will make sense to apply for the refinance.
You can consolidate your debt into one payment by obtaining a bad credit mortgage refinance plan. This will eliminate a lot of those high fees. Again, keep in mind that your home is on the line. If you have a history of defaulting on debt or otherwise having a history of non-payments, think again before you apply for a mortgage refinance. You could lose your home if you don’t make the payments as promised.
The benefits of a bad credit mortgage refinance are that you can start to rebuild your credit history by wiping out existing debt, paying off credit cards, and making one payment to a mortgage company. Your credit score is based on whether or not you make payments on time and how many open lines of credit you have. If you have a lot of new credit card accounts, this will adversely affect your credit.
But if you make timely payments without missing any, you will see your credit score go up. Once you have a great credit score, you will be able to easily obtain loans for cars, credit cards, etc., at much lower rates. Also, by only having one payment to remember to pay, you may be less likely to miss a payment when you’re trying to juggle a lot of bills at once.
A great way to make sure your mortgage payment is paid on time every month is to set up an automatic draft from your bank account. You will never have to worry about missed payments or late fees again. Just make sure you have the money in the account when the payment is withdrawn.
If you are in the market for a bad credit mortgage refinance do some checking online or with a reputable financial institution before you apply. There are fees or interest ‘points’ that sometimes are added onto the loan so make sure you talk with a knowledgeable professional before pursuing a loan. Compare rates and fees as well – a half of an interest point makes a big difference in your payment. Make sure it is a financial decision that makes sense for you before you sign on the dotted line.
You’ve heard the commercials: “Bad Credit? No Credit? No Problem!” but they might sound too good to be true for someone who might have had difficulty paying the mortgage and now has a poor credit score. It’s a frustrating feeling of being in a position to get behind on payments knowing your FICO score and your credit history will be adversely affected.
But there are ways to obtain help with paying the bills, get a lower interest rate on your mortgage or to even consolidate debt into a mortgage payment.
Home Equity Loans
Home equity loans can help homeowners who have experienced problems with bad credit. Home equity loans are mortgage loans that are secured by your home. This is something that you should consider very carefully if you have a history of not being able to meet your financial demands. If you default on a home equity loan, you can lose your home. However, this is an option to help you get caught up with debt and make other financial payments and also have some money available if you need home improvements.
Equity in a home is calculated by taking what you currently owe on your home and deducting it from what your home is worth according to a financial institution. If you have some equity built up in your home, you can quality to receive that equity in the form of a low interest home equity loan.
Lower Interest Rates
A bad credit mortgage refinance is possible even if you have a not-so-great FICO score. A bad credit mortgage refinance will help homeowners by allowing them to receive lower interest rate leading to a lower monthly mortgage payment. Take a good look at your current bills, especially your credit card bills. Sometimes your credit card bills can charge you exorbitant interest rates and additional high fees for late payments, over-the-limit payments and more. See what you are paying credit card companies and then adetermine if obtaining a mortgage refinance is possible. If it turns out that you will be saving hundreds of dollars on your mortgage payment by refinancing, then it will make sense to apply for the refinance.
You can consolidate your debt into one payment by obtaining a bad credit mortgage refinance plan. This will eliminate a lot of those high fees. Again, keep in mind that your home is on the line. If you have a history of defaulting on debt or otherwise having a history of non-payments, think again before you apply for a mortgage refinance. You could lose your home if you don’t make the payments as promised.
The benefits of a bad credit mortgage refinance are that you can start to rebuild your credit history by wiping out existing debt, paying off credit cards, and making one payment to a mortgage company. Your credit score is based on whether or not you make payments on time and how many open lines of credit you have. If you have a lot of new credit card accounts, this will adversely affect your credit.
But if you make timely payments without missing any, you will see your credit score go up. Once you have a great credit score, you will be able to easily obtain loans for cars, credit cards, etc., at much lower rates. Also, by only having one payment to remember to pay, you may be less likely to miss a payment when you’re trying to juggle a lot of bills at once.
A great way to make sure your mortgage payment is paid on time every month is to set up an automatic draft from your bank account. You will never have to worry about missed payments or late fees again. Just make sure you have the money in the account when the payment is withdrawn.
If you are in the market for a bad credit mortgage refinance do some checking online or with a reputable financial institution before you apply. There are fees or interest ‘points’ that sometimes are added onto the loan so make sure you talk with a knowledgeable professional before pursuing a loan. Compare rates and fees as well – a half of an interest point makes a big difference in your payment. Make sure it is a financial decision that makes sense for you before you sign on the dotted line.
Refinancing a Mortgage With Bad Credit
First of all, don't panic. Although banks have tightened up their lending standards considerably, it is still possible to get a refinance or a mortgage for a new home purchase even with a blot on your credit history. That's the good news.
The bad news is that getting a refinance or other mortgage gets progressively more expensive the lower your credit score is. So the whole question may not be so much whether you can refinance your mortgage, but whether you can do so on terms that make the process worthwhile.
So why do you want to refinance? Are you looking to take advantage of the current low rates in order to save a percentage point or two off your current mortgage? Do you have an interest-only or option ARM that's about to reset to a much higher monthly payment? Or perhaps you've suffered a financial setback and would like to refinance your remaining balance back out to 30 years to bring down your monthly payments?
Should you seek to refinance your mortgage?
Depending on how poor your credit is, you may have difficulty refinancing into a lower fixed rate than you have now. Interest rates are tied to credit scores and the lower your score, the higher the rate you're going to pay. And if your poor credit rating is due to missed mortgage payments (by 30 days or more), you likely won't be able to refinance - a loan modification is probably a more realistic option. However, if your poor credit is due to other factors, such as high levels of credit card debt, and you're currently paying a high rate on your mortgage, it may be worthwhile to refinance even if you don't qualify for the lowest rates now available.
It also makes sense to refinance, even if you can't qualify for the lowest rates, if you have an ARM that's about to reset to a higher rate or monthly payment. Because interest rates are low right now, it isn't likely that a regular ARM will reset to a significantly higher rate right now. But if you have an interest-only or option-ARM that's about to reset, you could be facing dramatically higher payments if you don't refinance.
Get rates from multiple lenders
The key to refinancing with bad credit - or any time you're looking for a mortgage, in fact - is to shop around. Different lenders and brokers cater to different parts of the market, and some of them specialize in loans to people with weak credit. But you've got to shop around. Obtain your credit score (more on that below) and contact 6-10 lenders and see what sort of terms they offer. You can also contact several mortgage brokers, who can track down the lowest rate and terms for you - but you'll need to pay a small slice to them as well.
So how much will you have to pay? According to the Fair Isaac Corporation, which developed the FICO credit rating system used by lenders, you can still get a fairly good rate with a score as low as 660 - about 5.5 percent on a 30-year fixed-rate mortgage as of Aug. 14, 2009. Higher scores mean lower rates - saving about two-tenths of a percentage point for each step upward to scores of 680, 700 and 760 or above.
But below 660, rates increase rapidly, by about half a percent for every 20 point drop - to about 6 percent for a score of 640-659, and 6.5 percent for scores of 620-639. Rates for scores below 620 are not listed, but will be even higher, if you are able to get financing, which may require a co-signer on the loan in the current economic climate.
Fixing your credit score
So before you start shopping for a mortgage or refinance, you'll want to know your credit score. You can obtain it from any of the three major credit reporting agencies - Experian, Equifax and Transunion. Note that while you're entitled to obtain a free copy of your credit report from each of these every year, you'll normally have to pay to obtain your actual credit score.
When you get your credit score, you may be surprised to find it's higher than you expected. If you initially had to take out a subprime mortgage due to weak credit, your score should have improved considerably if you've stayed current on your payments for a year or two.
Once you have your score and credit report, check to see if there's anything you can do to bring it up, if your score is low. Many people are surprised to learn that they can improve their score dramatically within 30 days simply by paying off high-balance credit cards. If you have savings or other resources you can draw on to pay down revolving debts, it might make sense to do so if refinancing would provide a significant economic benefit for you.
This is one of the places where a mortgage broker or lender can be of assistance. They may be able to help you identify things you can do to bring your score up over the coming months or perhaps a year. Depending on how soon you need to refinance, this could be a better strategy than trying to refinance immediately - even if rates go up overall, the rate that you qualify for might be lower if you can improve your score.
The bad news is that getting a refinance or other mortgage gets progressively more expensive the lower your credit score is. So the whole question may not be so much whether you can refinance your mortgage, but whether you can do so on terms that make the process worthwhile.
So why do you want to refinance? Are you looking to take advantage of the current low rates in order to save a percentage point or two off your current mortgage? Do you have an interest-only or option ARM that's about to reset to a much higher monthly payment? Or perhaps you've suffered a financial setback and would like to refinance your remaining balance back out to 30 years to bring down your monthly payments?
Should you seek to refinance your mortgage?
Depending on how poor your credit is, you may have difficulty refinancing into a lower fixed rate than you have now. Interest rates are tied to credit scores and the lower your score, the higher the rate you're going to pay. And if your poor credit rating is due to missed mortgage payments (by 30 days or more), you likely won't be able to refinance - a loan modification is probably a more realistic option. However, if your poor credit is due to other factors, such as high levels of credit card debt, and you're currently paying a high rate on your mortgage, it may be worthwhile to refinance even if you don't qualify for the lowest rates now available.
It also makes sense to refinance, even if you can't qualify for the lowest rates, if you have an ARM that's about to reset to a higher rate or monthly payment. Because interest rates are low right now, it isn't likely that a regular ARM will reset to a significantly higher rate right now. But if you have an interest-only or option-ARM that's about to reset, you could be facing dramatically higher payments if you don't refinance.
Get rates from multiple lenders
The key to refinancing with bad credit - or any time you're looking for a mortgage, in fact - is to shop around. Different lenders and brokers cater to different parts of the market, and some of them specialize in loans to people with weak credit. But you've got to shop around. Obtain your credit score (more on that below) and contact 6-10 lenders and see what sort of terms they offer. You can also contact several mortgage brokers, who can track down the lowest rate and terms for you - but you'll need to pay a small slice to them as well.
So how much will you have to pay? According to the Fair Isaac Corporation, which developed the FICO credit rating system used by lenders, you can still get a fairly good rate with a score as low as 660 - about 5.5 percent on a 30-year fixed-rate mortgage as of Aug. 14, 2009. Higher scores mean lower rates - saving about two-tenths of a percentage point for each step upward to scores of 680, 700 and 760 or above.
But below 660, rates increase rapidly, by about half a percent for every 20 point drop - to about 6 percent for a score of 640-659, and 6.5 percent for scores of 620-639. Rates for scores below 620 are not listed, but will be even higher, if you are able to get financing, which may require a co-signer on the loan in the current economic climate.
Fixing your credit score
So before you start shopping for a mortgage or refinance, you'll want to know your credit score. You can obtain it from any of the three major credit reporting agencies - Experian, Equifax and Transunion. Note that while you're entitled to obtain a free copy of your credit report from each of these every year, you'll normally have to pay to obtain your actual credit score.
When you get your credit score, you may be surprised to find it's higher than you expected. If you initially had to take out a subprime mortgage due to weak credit, your score should have improved considerably if you've stayed current on your payments for a year or two.
Once you have your score and credit report, check to see if there's anything you can do to bring it up, if your score is low. Many people are surprised to learn that they can improve their score dramatically within 30 days simply by paying off high-balance credit cards. If you have savings or other resources you can draw on to pay down revolving debts, it might make sense to do so if refinancing would provide a significant economic benefit for you.
This is one of the places where a mortgage broker or lender can be of assistance. They may be able to help you identify things you can do to bring your score up over the coming months or perhaps a year. Depending on how soon you need to refinance, this could be a better strategy than trying to refinance immediately - even if rates go up overall, the rate that you qualify for might be lower if you can improve your score.
Mortgages: The ABCs Of Refinancing
Refinancing a mortgage means paying off an existing loan and replacing it with a new one. There are many common reasons why homeowners refinance: the opportunity to obtain a lower interest rate; the chance to shorten the term of their mortgage; the desire to convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa; the opportunity to tap a home's equity in order to finance a large purchase; and the desire to consolidate debt. Some of these motivations have both benefits and pitfalls. And because refinancing can cost between 3% and 6% of the loan's principal and - like taking out the original mortgage - requires appraisal, title search and application fees, it's important for a homeowner to determine whether his or her reason for refinancing offers true benefit.
Securing a Lower Interest Rate
One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb was that it was worth the money to refinance if you could reduce your interest rate by at least 2%. Today, many lenders say 1% savings is enough of an incentive to refinance.
Reducing your interest rate not only helps you save money, but increases the rate at which you build equity in your home, and can decrease the size of your monthly payment. For example, a 30-year fixed-rate mortgage with an interest rate of 9% on a $100,000 home has a principal and interest payment of $804.62. That same loan at 6% reduces your payment to $599.55. (To learn more about the home costs, see Mortgages: How Much Can You Afford?, Home-Equity Loans: The Costs and The Home-Equity Loan: What It Is And How It Works.)
Shortening the Loan's Term
When interest rates fall, homeowners often have the opportunity to refinance an existing loan for another that, without much change in the monthly payment, has a shorter term. For that 30-year fixed-rate mortgage on a $100,000 home, refinancing from 9% to $5.5% cuts the term in half to 15 years, with only a slight change in the monthly payment from $804.62 to $817.08.
Converting between Adjustable-Rate and Fixed-Rate Mortgages
While ARMs start out offering lower rates than fixed-rate mortgages, periodic adjustments often result in rate increases that are higher than the rate available through a fixed-rate mortgage. When this occurs, converting to a fixed-rate mortgage results in a lower interest rate as well as eliminates concern over future interest rate hikes.
Conversely, converting from a fixed-rate loan to an ARM can also be a sound financial strategy, particularly in a falling interest rate environment. If rates continue to fall, the periodic rate adjustments on an ARM result in decreasing rates and smaller monthly mortgage payments, eliminating the need to refinance every time rates drop. Converting to an ARM may be a good idea especially for homeowners who don't plan to stay in their home for more than a few years. If interest rates are falling, these homeowners can reduce their loan's interest rate and monthly payment, but won't have to worry about interest rates eventually rising in the future.
Tapping Equity and Consolidating Debt
While the previously mentioned reasons to refinance are all financially sound, mortgage refinancing can be a slippery slope to never-ending debt. It's important to keep this in mind when considering refinancing for the purpose of tapping into home equity or consolidating debt.
Homeowners often access the equity in their homes to cover big expenses, such as the costs of home remodeling or a child's college education. These homeowners may justify such refinancing by pointing out that remodeling adds value to the home or that the interest rate on the mortgage loan is less than the rate on money borrowed from another source. Another justification is that the interest on mortgages is tax deductible. While these arguments may be true, increasing the number of years that you owe on your mortgage is rarely a smart financial decision, nor is spending a dollar on interest to get a $0.30 tax deduction.
Many homeowners refinance in order to consolidate their debt. At face value, replacing high-interest debt with a low-interest mortgage is a good idea. Unfortunately, refinancing does not bring with it an automatic dose of financial prudence. In reality, a large percentage of people who once generated high-interest debt on credit cards, cars and other purchases will simply do it again after the mortgage refinancing gives them the available credit to do so. This creates an instant quadruple loss composed of wasted fees on the refinancing, lost equity in the house, additional years of increased interest payments on the new mortgage and the return of high-interest debt once the credit cards are maxed out again - the possible result is an endless perpetuation of the cycle of debt.
Should You Refinance?
Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting your debt under control. Before you refinance take a careful look at your financial situation, and ask yourself: How long do I plan to continue living in the house? and How much money will I save by refinancing? (For more information, see The True Economics Of Refinancing A Mortgage.)
Again, keep in mind that refinancing generally costs between 3% and 6% of the loan's principal. It takes years to recoup that cost with the savings generated by a lower interest rate or shorter term. So, if you are not planning to stay in the home for more than a few years, the cost of refinancing may negate any of the potential savings It also pays to remember that a savvy homeowner is always looking for ways to reduce debt, build equity, save money and eliminate that mortgage payment. Taking cash out of your equity when you refinance doesn't help you achieve any of those goals.
Securing a Lower Interest Rate
One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb was that it was worth the money to refinance if you could reduce your interest rate by at least 2%. Today, many lenders say 1% savings is enough of an incentive to refinance.
Reducing your interest rate not only helps you save money, but increases the rate at which you build equity in your home, and can decrease the size of your monthly payment. For example, a 30-year fixed-rate mortgage with an interest rate of 9% on a $100,000 home has a principal and interest payment of $804.62. That same loan at 6% reduces your payment to $599.55. (To learn more about the home costs, see Mortgages: How Much Can You Afford?, Home-Equity Loans: The Costs and The Home-Equity Loan: What It Is And How It Works.)
Shortening the Loan's Term
When interest rates fall, homeowners often have the opportunity to refinance an existing loan for another that, without much change in the monthly payment, has a shorter term. For that 30-year fixed-rate mortgage on a $100,000 home, refinancing from 9% to $5.5% cuts the term in half to 15 years, with only a slight change in the monthly payment from $804.62 to $817.08.
Converting between Adjustable-Rate and Fixed-Rate Mortgages
While ARMs start out offering lower rates than fixed-rate mortgages, periodic adjustments often result in rate increases that are higher than the rate available through a fixed-rate mortgage. When this occurs, converting to a fixed-rate mortgage results in a lower interest rate as well as eliminates concern over future interest rate hikes.
Conversely, converting from a fixed-rate loan to an ARM can also be a sound financial strategy, particularly in a falling interest rate environment. If rates continue to fall, the periodic rate adjustments on an ARM result in decreasing rates and smaller monthly mortgage payments, eliminating the need to refinance every time rates drop. Converting to an ARM may be a good idea especially for homeowners who don't plan to stay in their home for more than a few years. If interest rates are falling, these homeowners can reduce their loan's interest rate and monthly payment, but won't have to worry about interest rates eventually rising in the future.
Tapping Equity and Consolidating Debt
While the previously mentioned reasons to refinance are all financially sound, mortgage refinancing can be a slippery slope to never-ending debt. It's important to keep this in mind when considering refinancing for the purpose of tapping into home equity or consolidating debt.
Homeowners often access the equity in their homes to cover big expenses, such as the costs of home remodeling or a child's college education. These homeowners may justify such refinancing by pointing out that remodeling adds value to the home or that the interest rate on the mortgage loan is less than the rate on money borrowed from another source. Another justification is that the interest on mortgages is tax deductible. While these arguments may be true, increasing the number of years that you owe on your mortgage is rarely a smart financial decision, nor is spending a dollar on interest to get a $0.30 tax deduction.
Many homeowners refinance in order to consolidate their debt. At face value, replacing high-interest debt with a low-interest mortgage is a good idea. Unfortunately, refinancing does not bring with it an automatic dose of financial prudence. In reality, a large percentage of people who once generated high-interest debt on credit cards, cars and other purchases will simply do it again after the mortgage refinancing gives them the available credit to do so. This creates an instant quadruple loss composed of wasted fees on the refinancing, lost equity in the house, additional years of increased interest payments on the new mortgage and the return of high-interest debt once the credit cards are maxed out again - the possible result is an endless perpetuation of the cycle of debt.
Should You Refinance?
Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting your debt under control. Before you refinance take a careful look at your financial situation, and ask yourself: How long do I plan to continue living in the house? and How much money will I save by refinancing? (For more information, see The True Economics Of Refinancing A Mortgage.)
Again, keep in mind that refinancing generally costs between 3% and 6% of the loan's principal. It takes years to recoup that cost with the savings generated by a lower interest rate or shorter term. So, if you are not planning to stay in the home for more than a few years, the cost of refinancing may negate any of the potential savings It also pays to remember that a savvy homeowner is always looking for ways to reduce debt, build equity, save money and eliminate that mortgage payment. Taking cash out of your equity when you refinance doesn't help you achieve any of those goals.
Saturday, October 17, 2009
Mortgage Refinance - 7 Things That You Need Know About
“Mortgage refinancing – doubts and myths explained.” Refinancing a mortgage is just like availing your first mortgage, but with some variations - Refinanceitt.com.
The Finance Industry in America is currently changing restrictions as the nation watches finance deals fall by as much as 80 percent. There are new Mortgage Advice Services popping up, making the downturn offer information to customers in need of answers to their questions about mortgage refinance during questionable times. They discuss about mortgage refinance loans, mortgage refinance rates, home mortgage refinance, but before opting any option one needs to know the correct scenario about mortgage refinancing.
According to the newest data from Deutsche Bank, delinquencies on commercial mortgages, that are packaged and sold as bonds, nearly doubled during the past three months to about 1.2%. This represents nearly a third of the commercial real-estate debt market. Imagine access to extra cash, while simultaneously lowering your monthly mortgage payment. This dream can become a reality through home mortgage refinancing. When refinancing, nobody wants to eliminate all the equity that is earned. Home ownership is all about building equity!
This does not mean refinancing your home is always a bad financial decision? In fact, often refinancing can be a big step toward reaching your long-term financial goals. And it is the equity that allows refinancing in the first place. The most common mistake homeowners make with regards to canceling equity is cash-out refinancing. To avoid this refinancing pitfall, refinancing with a cash-out loan is very likely to eliminate all your equity. Instead, one can refinance both mortgages into one new mortgage with a cash-out option.
Another form of refinancing homeowners might regret is refinancing from a fixed rate mortgage (FRM) to an adjustable rate mortgage (ARM). Homeowners often do this to lower their monthly payments, but with an ARM, the interest rate is not locked in. Sure, the payments may be lower now, but if interest rates go up, future payments could be higher than the payments you were trying to reduce. Refinancing options that homeowners are not likely to regret include refinancing from an ARM to an FRM in order to lock in a low interest rate. This is a decision that is usually made with long-term financial goals in mind.
The Federal Truth in Lending Act is a safeguard for those who refinance a loan on their primary residence with a different lender. This Act guarantees borrowers the “right of rescission,” meaning they can cancel the debt within 3 days of closing.
Low interest rates and a lucrative real estate market have prompted many homeowners to consider refinancing. But it may be difficult to tell whether right now is the best time to remortgage.
The Finance Industry in America is currently changing restrictions as the nation watches finance deals fall by as much as 80 percent. There are new Mortgage Advice Services popping up, making the downturn offer information to customers in need of answers to their questions about mortgage refinance during questionable times. They discuss about mortgage refinance loans, mortgage refinance rates, home mortgage refinance, but before opting any option one needs to know the correct scenario about mortgage refinancing.
According to the newest data from Deutsche Bank, delinquencies on commercial mortgages, that are packaged and sold as bonds, nearly doubled during the past three months to about 1.2%. This represents nearly a third of the commercial real-estate debt market. Imagine access to extra cash, while simultaneously lowering your monthly mortgage payment. This dream can become a reality through home mortgage refinancing. When refinancing, nobody wants to eliminate all the equity that is earned. Home ownership is all about building equity!
This does not mean refinancing your home is always a bad financial decision? In fact, often refinancing can be a big step toward reaching your long-term financial goals. And it is the equity that allows refinancing in the first place. The most common mistake homeowners make with regards to canceling equity is cash-out refinancing. To avoid this refinancing pitfall, refinancing with a cash-out loan is very likely to eliminate all your equity. Instead, one can refinance both mortgages into one new mortgage with a cash-out option.
Another form of refinancing homeowners might regret is refinancing from a fixed rate mortgage (FRM) to an adjustable rate mortgage (ARM). Homeowners often do this to lower their monthly payments, but with an ARM, the interest rate is not locked in. Sure, the payments may be lower now, but if interest rates go up, future payments could be higher than the payments you were trying to reduce. Refinancing options that homeowners are not likely to regret include refinancing from an ARM to an FRM in order to lock in a low interest rate. This is a decision that is usually made with long-term financial goals in mind.
The Federal Truth in Lending Act is a safeguard for those who refinance a loan on their primary residence with a different lender. This Act guarantees borrowers the “right of rescission,” meaning they can cancel the debt within 3 days of closing.
Low interest rates and a lucrative real estate market have prompted many homeowners to consider refinancing. But it may be difficult to tell whether right now is the best time to remortgage.
To Mortgage Refinance or not to Mortgage Refinance – that is the question on the minds of many bor
If you are feeling a little disgruntled about your mortgage rates or if your lender is simply not providing you with the service you desire it may be that you are thinking about a mortgage refinance. The reality today is that while mortgage rates llook attractive for new loans the majority of borrowers who are with the banks are paying the standard variable rate which is currently sitting at around 5.80% p.a. This could be you. It would seem to be a sensible move to weigh up your mortgage refinance options. What do you need to consider in this process?
Most borrowers simply jump into a mortgage refinance and are often well down the track before they realise that the move may not be a viable proposition. Before you spend too much time or any money look at the costs involved in your mortgage refinance. If you are dealing with a mortgage broker in the mortgage refinance process and he or she does not ask you to ascertain your exit costs on the existing home loan you have then quite frankly you should look for someone else to take care of your mortgage refinance. Many mortgage brokers only alert you to the costs of a mortgage refinance in so far as they relate to the cost of the new lender. They do not want to make you too aware of the costs that you will incur if you are exiting your existing loan early. As a general rule if you are paying out your mortgage within 5 years of its inception then the mortgage refinance costs will include early penalties.
Exit costs on a mortgage refinance will vary depending on whether you are in a variable or fixed rate loan. If you are in a fixed rate loan then you will incur “break costs” which as a rule of thumb equate to the difference between your fixed interest rate to maturity of your fixed period and the rate that the lender can currently reinvest its funds for that same duration. Recently many borrowers have commenced a mortgage refinance process not realising that their break costs are significant because of the dramatic rate reductions we have experienced in Australia over the past 12 months. The amount of these break costs may be such that the amount actually required to complete the mortgage refinance is such that the security value will not support the loan or the loan amount represents say 90% of the value and as a result the borrower incurs additional lenders mortgage insurance costs which can also be quite high.
If there are high early repayment penalties on your loan then you need to make sure that the interest rate differential between the existing mortgage and the new loan is such that you will recoup these costs within a 6 month period and thereafter be ahead as a result of your mortgage refinance.
Too often borrowers are ill-advised or embark on a mortgage refinance before doing the sums – as a result the interest saving they think the mortgage refinance will deliver is wiped out by the costs of the exercise.
Check all your costs first – for both the outgoing and in-coming lender before you proceed down the path of a mortgage refinance. It must be a viable proposition to make the mortgage refinance option a worthwhile exercise.
Most borrowers simply jump into a mortgage refinance and are often well down the track before they realise that the move may not be a viable proposition. Before you spend too much time or any money look at the costs involved in your mortgage refinance. If you are dealing with a mortgage broker in the mortgage refinance process and he or she does not ask you to ascertain your exit costs on the existing home loan you have then quite frankly you should look for someone else to take care of your mortgage refinance. Many mortgage brokers only alert you to the costs of a mortgage refinance in so far as they relate to the cost of the new lender. They do not want to make you too aware of the costs that you will incur if you are exiting your existing loan early. As a general rule if you are paying out your mortgage within 5 years of its inception then the mortgage refinance costs will include early penalties.
Exit costs on a mortgage refinance will vary depending on whether you are in a variable or fixed rate loan. If you are in a fixed rate loan then you will incur “break costs” which as a rule of thumb equate to the difference between your fixed interest rate to maturity of your fixed period and the rate that the lender can currently reinvest its funds for that same duration. Recently many borrowers have commenced a mortgage refinance process not realising that their break costs are significant because of the dramatic rate reductions we have experienced in Australia over the past 12 months. The amount of these break costs may be such that the amount actually required to complete the mortgage refinance is such that the security value will not support the loan or the loan amount represents say 90% of the value and as a result the borrower incurs additional lenders mortgage insurance costs which can also be quite high.
If there are high early repayment penalties on your loan then you need to make sure that the interest rate differential between the existing mortgage and the new loan is such that you will recoup these costs within a 6 month period and thereafter be ahead as a result of your mortgage refinance.
Too often borrowers are ill-advised or embark on a mortgage refinance before doing the sums – as a result the interest saving they think the mortgage refinance will deliver is wiped out by the costs of the exercise.
Check all your costs first – for both the outgoing and in-coming lender before you proceed down the path of a mortgage refinance. It must be a viable proposition to make the mortgage refinance option a worthwhile exercise.
Can I Refinance An ARM to a Fixed Rate Mortgage-Even If I Have An ARM loan And Bad Credit
Within the previous decade lots of people employed adjustable rate home loans to acquire their new properties or refinance an existing home loan.
Many borrowers recently refinanced their ARM to a fixed rate mortgage as a way to avert the almost definite rate and payment increase.
Unfortunately there is a significant number of home owners who are not aware that the mortgage they currently hold will reset because they simply do not understand them.
For these borrowers the increase will be a real reality check and a likely budge crisis.
How Can I Determine If I Hold a ARM Loan
If you are unsure if the home mortgage you presently have is an ARM loan you will have to read your documents that you received at the closing.
There is a written document in the loan closing documents that is labeled the adjustable rate rider,if you see this in your packet then you hold an adjustable rate mortgage.
This form will list the conditions of your adjustable loan. Study this written document as it will tell you when your loan is supposed to reset and the amount of the first increase.
Going To a Fixed Rate Home Loan
Borrowers with an adjustable mortgage and good credit can refinance with today's low rates, but you are going to need a minimum of 5% equity in your dwelling to do so.
When you refinance with a fixed rate mortgage many times you will gain a lower house payment in addition to the extra benefit of a stable mortgage rate.
To receive the reduced interest rates getting through a standard mortgage refinance is all that is necessary.
What Can I Do When I Cannot Refinance
If for whatever reason you have no equity in your house or a bad consumer credit score and are unable to refinance your ARM to fixed rate mortgage you may be dealing with some trying situations.
To avoid these problems you must contact your mortgage lender and try to figure out a home loan modification with them.
If you have always been a reliable client loan holders will often times alter ARMS that are hard for home owners to make into more secure fixed rate mortgages.
Author Resource:- If you are unable to refinance your loan due to bad credit you need to check out http://www.diycredithelper.com today and learn how you can repair and increase your credit score.
Many borrowers recently refinanced their ARM to a fixed rate mortgage as a way to avert the almost definite rate and payment increase.
Unfortunately there is a significant number of home owners who are not aware that the mortgage they currently hold will reset because they simply do not understand them.
For these borrowers the increase will be a real reality check and a likely budge crisis.
How Can I Determine If I Hold a ARM Loan
If you are unsure if the home mortgage you presently have is an ARM loan you will have to read your documents that you received at the closing.
There is a written document in the loan closing documents that is labeled the adjustable rate rider,if you see this in your packet then you hold an adjustable rate mortgage.
This form will list the conditions of your adjustable loan. Study this written document as it will tell you when your loan is supposed to reset and the amount of the first increase.
Going To a Fixed Rate Home Loan
Borrowers with an adjustable mortgage and good credit can refinance with today's low rates, but you are going to need a minimum of 5% equity in your dwelling to do so.
When you refinance with a fixed rate mortgage many times you will gain a lower house payment in addition to the extra benefit of a stable mortgage rate.
To receive the reduced interest rates getting through a standard mortgage refinance is all that is necessary.
What Can I Do When I Cannot Refinance
If for whatever reason you have no equity in your house or a bad consumer credit score and are unable to refinance your ARM to fixed rate mortgage you may be dealing with some trying situations.
To avoid these problems you must contact your mortgage lender and try to figure out a home loan modification with them.
If you have always been a reliable client loan holders will often times alter ARMS that are hard for home owners to make into more secure fixed rate mortgages.
Author Resource:- If you are unable to refinance your loan due to bad credit you need to check out http://www.diycredithelper.com today and learn how you can repair and increase your credit score.
Mortgage Refinance Quote
Still paying a high interest rate on your mortgage? That extra money should be yours each month. When interest rates are 1% lower than what you are currently paying, it’s time to consider refinancing. This can mean great savings for you and your family. Replacing your existing mortgage with a new, lower interest loan, changing the term of your loan, or even consolidating all your debts into this new loan will save you money, both monthly and over the life of the loan. Through the iMortgage Central network of refinance lenders, we can specifically design a custom mortgage refinance loan quote 2-8% below your current rate.
Mortgage Refinance Quote Features Include:
No Credit Check - Get Free Quotes Without Pulling Your Credit Score
Custom refi quote 2-8% below your current rate in 24 hours
Customized pricing
Rate Lock - if you choose
Bad Credit, Slow Credit, Divorce or Past Bankruptcy Accepted
Consolidate all your debts into this new loan within 3 business days
Here's how iMortgage Central works:
Fill out the mortgage refinance loan quote application. We will search our database of refinance loan programs to fit your borrowing needs, there are hundreds of options and thousands of loan programs available.
Within 24 hours you will receive a free no obligation mortgage refinance loan quote. You then - Compare, Choose and Save!
Mortgage Refinance Quote Features Include:
No Credit Check - Get Free Quotes Without Pulling Your Credit Score
Custom refi quote 2-8% below your current rate in 24 hours
Customized pricing
Rate Lock - if you choose
Bad Credit, Slow Credit, Divorce or Past Bankruptcy Accepted
Consolidate all your debts into this new loan within 3 business days
Here's how iMortgage Central works:
Fill out the mortgage refinance loan quote application. We will search our database of refinance loan programs to fit your borrowing needs, there are hundreds of options and thousands of loan programs available.
Within 24 hours you will receive a free no obligation mortgage refinance loan quote. You then - Compare, Choose and Save!
Becoming a Refinance Equity Loan Expert
Few lenders offer refinancing equity loans that help the buyers cash out on deals. The loans offered
by few lenders are flexing pay loans that provides loan amounts in various figures. The equity loans
come in two standard forms for the most part, but extend in branches since some loans are
specifically designed for self-employed, retirees, and other types of borrowers.
The different loans include the Buy to Let, Repayment Loans, Interest Only, Bridging Loans, and so forth.
Regardless of the loan considered, make sure you understand the entirety of the loans details to
avoid loss. Home equity loans offer cheaper repayment on loans, since the lenders have a smaller
amount of paperwork, and some lenders do not require appraisal. Thus, some loans offered make
room for borrowers, since the loans may waive the closing costs, by including the costs in the
monthly repayments. Few lenders do not charge application charges, and will even extend credit to
homeowners with pending credit issues.
With any loan, you want to take notice of the fine print. Few lenders will offer low monthly
installments on loans with fixed rates, while others stipulate the interest rates in the fine print, and
warn you that rates are variable and subject to change. This can lead to hassle later; as such, make
sure you read the fine print. The last thing you want to do is to take out a loan to find other charges
cropping up in your loan agreement.
Finally, financing equity loans is a way to get out of debt; however, it takes a knowledgeable
candidate to find the right loan that will make the most out of his equity, which is why borrowers
must be willing to spend the time to understand equity loans before signing a contract.
by few lenders are flexing pay loans that provides loan amounts in various figures. The equity loans
come in two standard forms for the most part, but extend in branches since some loans are
specifically designed for self-employed, retirees, and other types of borrowers.
The different loans include the Buy to Let, Repayment Loans, Interest Only, Bridging Loans, and so forth.
Regardless of the loan considered, make sure you understand the entirety of the loans details to
avoid loss. Home equity loans offer cheaper repayment on loans, since the lenders have a smaller
amount of paperwork, and some lenders do not require appraisal. Thus, some loans offered make
room for borrowers, since the loans may waive the closing costs, by including the costs in the
monthly repayments. Few lenders do not charge application charges, and will even extend credit to
homeowners with pending credit issues.
With any loan, you want to take notice of the fine print. Few lenders will offer low monthly
installments on loans with fixed rates, while others stipulate the interest rates in the fine print, and
warn you that rates are variable and subject to change. This can lead to hassle later; as such, make
sure you read the fine print. The last thing you want to do is to take out a loan to find other charges
cropping up in your loan agreement.
Finally, financing equity loans is a way to get out of debt; however, it takes a knowledgeable
candidate to find the right loan that will make the most out of his equity, which is why borrowers
must be willing to spend the time to understand equity loans before signing a contract.
Refinance to Settle Your Debt
If you are finding yourself struggling to pay bills, you may find a great solution right within your own home. Do you own your house? If you own and do not rent, you may qualify for a refinance or home equity loan.
What does it mean to refinance my home or to get a home equity loan?
With a refinance, your home would be appraised to determine its current value. Let̢۪s say you purchased your home for $120,000 and it is now valued at $200,000, you have $80,000 in equity. This means if you sold your home for the appraised value, you could earn $80,000 in profit. You can use this equity to receive a refinance or home equity loan. The additional house value can go towards paying off your high interest loans.
Where do I go to refinance my home?
There are many financial institutions that handle home equity or refinance loans. Some ask for you to pay for appraisal and credit report fees, while others absorb the cost for you. Look for a program that works for you by calling around to a variety of financial institutions.
How will refinancing affect my mortgage?
Refinancing loans or home equity loans will make your monthly mortgage payment increase. Usually, the amount is slight and far less than what you are paying if you combine your mortgage payment with any credit card or line of credit payments. If your mortgage is $1,000 per month and you pay $600 a month in credit card and other loans, you may be able to refinance everything and pay a mere $1,300 a month. That is $300 a month you would then be able to put towards better things.
How does a home equity loan affect my mortgage?
Home equity loans are a little different from refinancing. With a home equity loan, you borrow against the additional value of your home. Usually, you have a shorter term of repayment with a home equity loan—generally ten or fifteen years. The payments still will be less expensive in most cases than paying your mortgage and credit card payments separately. Paying $200 to $300 toward your equity loan repayment is far less than the $600 you are currently paying.
What about the home equity line of credit?
A home equity line of credit is another option for settling your debt. With a home equity line of credit, you do not have a set repayment time limit. Usually, the line of credit remains open for ten years, during which you are only paying the interest. After ten years, the line of credit is restructured so that you are then paying interest plus an additional amount to reduce the loan amount.
What does it mean to refinance my home or to get a home equity loan?
With a refinance, your home would be appraised to determine its current value. Let̢۪s say you purchased your home for $120,000 and it is now valued at $200,000, you have $80,000 in equity. This means if you sold your home for the appraised value, you could earn $80,000 in profit. You can use this equity to receive a refinance or home equity loan. The additional house value can go towards paying off your high interest loans.
Where do I go to refinance my home?
There are many financial institutions that handle home equity or refinance loans. Some ask for you to pay for appraisal and credit report fees, while others absorb the cost for you. Look for a program that works for you by calling around to a variety of financial institutions.
How will refinancing affect my mortgage?
Refinancing loans or home equity loans will make your monthly mortgage payment increase. Usually, the amount is slight and far less than what you are paying if you combine your mortgage payment with any credit card or line of credit payments. If your mortgage is $1,000 per month and you pay $600 a month in credit card and other loans, you may be able to refinance everything and pay a mere $1,300 a month. That is $300 a month you would then be able to put towards better things.
How does a home equity loan affect my mortgage?
Home equity loans are a little different from refinancing. With a home equity loan, you borrow against the additional value of your home. Usually, you have a shorter term of repayment with a home equity loan—generally ten or fifteen years. The payments still will be less expensive in most cases than paying your mortgage and credit card payments separately. Paying $200 to $300 toward your equity loan repayment is far less than the $600 you are currently paying.
What about the home equity line of credit?
A home equity line of credit is another option for settling your debt. With a home equity line of credit, you do not have a set repayment time limit. Usually, the line of credit remains open for ten years, during which you are only paying the interest. After ten years, the line of credit is restructured so that you are then paying interest plus an additional amount to reduce the loan amount.
Refinance home equity mortgage
Building a dream house is not so easy. It involves great amount of commitment, struggle and more than important the finance to make this dream come true. Naturally, in that hurry to grab the opportune house, many don't calculate the Annual Percentage Rate (APR) of the loan taken up and just dream about their house in the hand. The same thing must have happened with you also. After some time, when your dream is fulfilled, you have the house in the hand and it is time for you to repay the amount, then you realise that you are paying too much in terms of interest than the original principal taken up for the loan.
In the past two turbulent years, the interest rates have been falling so tremendously that many house owners have lost the solace of acquiring a house. While many have gone in for foreclosure thinking that they are better off not having either the property or the loans, some have stuck to their dreams irrespective of the value the outside world bestows for them. It is always good to stick to your dreams and refinance home equity loan is one such way which makes it possible that you can stick to your dream in an easier manner.
Refinance home equity loan means taking up a new loan with a lower APR in comparison to the multiple loans which you owe to different lenders. Sticking to your dreams itself shows your commitment towards your life and as such your credit rating will naturally be positive. With such good credit rating, you will be naturally eligible for lower APR's thereby lowering the term and amount of repayment so that you can enjoy the lump sum cash for other requirements.
However, there may be times that your life requirements have pressed you so much that you may be forced to default a few instalments and as such your credit rating must have gone into the negative zone. Even in such a case, if you shop patiently, refinance home equity loan can be the right solution for your problems that you can enjoy lower instalments to one single lender and as there is no confusion of multiple bills, defaulting such payments is almost far from reality.
With improved repayment status, slowly your credit rating will also improve in the long run.
Now that the interest rates are at their least levels in pursuance to the Treasury bills which are estimated to be rising in the next 6 months, the APRs for refinancing would naturally be lower. The trick is to follow the auction rate chart of the T-bills. When the cycle in the chart is touching to its bottom, like that of now, you need to shop for multiple lenders before deciding for the best refinance home equity loan. You may think that why shop for multiple lenders when we need to take a single refinance home equity loan. Actually, no lender would offer you any benefit without dreaming of any advantage for him. When you meet multiple lenders, you become conversant with the types and terms of loans which the lenders are offering.
You need to note down every point which each lender is stressing upon. After returning to your house, if you make a situational analysis and go through the points noted down, you will understand the commitments of each and every lender. It may be that one lender may offer the loan at a.5% higher than the other lender. However, he may be an open minded person and may not charge you in any dubious way. He would lay down standard charges through which the calculation of APR would be quite easy. Even if such lender is a kilometer away from the other dubious lender, you can take the pain of traveling that extra distance once in a month with the confidence that the amount which you have mentioned in your cheque is ratified and you need not travel ten times for each payment.
Searching for a truthful lender doesn't mean that you agree to all his terms and conditions. You need to remember one thing that the refinance home equity loan is a mutually beneficial process and as such, you needn't kneel too much onto the lender's shoes. Just as you require a lender, the lender also needs committed borrowers that too in these turbulent times wherein defaulters are more in number than the repaying customers. You can always demand for lowering of charges to reduce your instalments.
The thumb rule in this matter is that your refinance home equity loan APR should be at least 2% lesser than the average APR's of your existing loans. In this way, your refinance home equity loan exercise would be successful. Once you complete that exercise, you can use that amount received towards redeeming your past loans with higher APR's, make further improvements to your dream house or even invest wisely if the interest received on such investments is sure to be higher than the APR's which you are repaying. If you are really conversant with the stock markets, investing in the equities at this time is also not a bad idea. But, one important thing one should remember is that money should never be kept idle. You should always use it for some constructive purpose or else the whole refinance home equity loans exercise would in itself be purposeless and waste.
In the past two turbulent years, the interest rates have been falling so tremendously that many house owners have lost the solace of acquiring a house. While many have gone in for foreclosure thinking that they are better off not having either the property or the loans, some have stuck to their dreams irrespective of the value the outside world bestows for them. It is always good to stick to your dreams and refinance home equity loan is one such way which makes it possible that you can stick to your dream in an easier manner.
Refinance home equity loan means taking up a new loan with a lower APR in comparison to the multiple loans which you owe to different lenders. Sticking to your dreams itself shows your commitment towards your life and as such your credit rating will naturally be positive. With such good credit rating, you will be naturally eligible for lower APR's thereby lowering the term and amount of repayment so that you can enjoy the lump sum cash for other requirements.
However, there may be times that your life requirements have pressed you so much that you may be forced to default a few instalments and as such your credit rating must have gone into the negative zone. Even in such a case, if you shop patiently, refinance home equity loan can be the right solution for your problems that you can enjoy lower instalments to one single lender and as there is no confusion of multiple bills, defaulting such payments is almost far from reality.
With improved repayment status, slowly your credit rating will also improve in the long run.
Now that the interest rates are at their least levels in pursuance to the Treasury bills which are estimated to be rising in the next 6 months, the APRs for refinancing would naturally be lower. The trick is to follow the auction rate chart of the T-bills. When the cycle in the chart is touching to its bottom, like that of now, you need to shop for multiple lenders before deciding for the best refinance home equity loan. You may think that why shop for multiple lenders when we need to take a single refinance home equity loan. Actually, no lender would offer you any benefit without dreaming of any advantage for him. When you meet multiple lenders, you become conversant with the types and terms of loans which the lenders are offering.
You need to note down every point which each lender is stressing upon. After returning to your house, if you make a situational analysis and go through the points noted down, you will understand the commitments of each and every lender. It may be that one lender may offer the loan at a.5% higher than the other lender. However, he may be an open minded person and may not charge you in any dubious way. He would lay down standard charges through which the calculation of APR would be quite easy. Even if such lender is a kilometer away from the other dubious lender, you can take the pain of traveling that extra distance once in a month with the confidence that the amount which you have mentioned in your cheque is ratified and you need not travel ten times for each payment.
Searching for a truthful lender doesn't mean that you agree to all his terms and conditions. You need to remember one thing that the refinance home equity loan is a mutually beneficial process and as such, you needn't kneel too much onto the lender's shoes. Just as you require a lender, the lender also needs committed borrowers that too in these turbulent times wherein defaulters are more in number than the repaying customers. You can always demand for lowering of charges to reduce your instalments.
The thumb rule in this matter is that your refinance home equity loan APR should be at least 2% lesser than the average APR's of your existing loans. In this way, your refinance home equity loan exercise would be successful. Once you complete that exercise, you can use that amount received towards redeeming your past loans with higher APR's, make further improvements to your dream house or even invest wisely if the interest received on such investments is sure to be higher than the APR's which you are repaying. If you are really conversant with the stock markets, investing in the equities at this time is also not a bad idea. But, one important thing one should remember is that money should never be kept idle. You should always use it for some constructive purpose or else the whole refinance home equity loans exercise would in itself be purposeless and waste.
Refinance Student Loan(For Student)
Let us first understand the meaning of refinance, Refinance, as the name suggests, means to finance the already financed loan. Thus, if a person has already availed a loan from any financial institution and then he takes another loan from other financial institution in order to repay the previous loan, it is known as refinance.
Now, what does refinancing student loans means:
As we all know, students have to spend regularly on the purchase of books, various instruments, on making researches and on their movement from one place to another apart from the tuition fee and other establishment charges of various colleges and the universities in which they are studying.
There are many meritorious students who wish to go abroad to pursue higher studies. It is also not necessary that they belong to the affluent families. Does it mean that they do not pursue their studies further? The answer is -No, not at all. There are many refinancing student loans institutions like banks that provide various kinds of loans to the students. The student has to repay this loan on completion of his studies when he starts earning. Also, there are many students who wish to continue studies in their own country but they are not capable of depositing their tuition fee etc. Education loans etc are made for such students only. Also, while pursuing their higher studies, a student has to make many researches and have to submit project reports etc. For all these, the banks and other financial institutions provide loans.
As we all know that the student has to repay the refinancing student loans or education loans availed to complete their studies etc. Since the interest is also charged on such loans, a student has to repay the loan amount as well as the amount of interest charged on such loans. Just imagine a situation, where the student who has already availed a student loan, gets an opportunity to take another loan for repaying the old one and that too, at lower rate of interest. Doesn?t it sound good? Yes, of course it is. Any student would definitely like to avail such loan. This is called as the .refinancing of student loan...
There are certainly many advantages of getting the student loan refinanced. As discussed earlier, the main goal of the refinancing student loans is to reduce the amount of monthly installment that a student pays towards the student loans. This can be done by several ways as claimed by the various companies that help in consolidating the student loans. The two ways in which it can be done is that either the interest part of the repayment is reduced or the duration of the student loan is increased. In either case of the refinancing of a student loan, a student shall definitely relax. It should be noted here that if the duration is increased, no doubt it would attract higher rate of interest and eventually total amount repaid would be more, but the monthly installment is manageable.
Thus it can be said that consolidating the student loans is one of the way of refinance the student loans. If a student is studying in the United States, then it should be known that the federal student loans and the other private student loans are consolidated and thus, refinanced, separately. This is because of the fact that the federal loans attract lower rate of interest as compared to the private loans, which are disbursed considering as a personal loan and with the assumption that the student?s income would increase as his studies goes higher. If the above two loans are consolidated as a combined loan, the consolidated rate of interest would definitely be higher. It should be also told here that the federal rate of interest on student loans changes once in a year. Right now, there are low.
Now, let us understand the various requirements of various institutions and the finance companies that provide the refinancing of student loans.
The first criteria that almost all the refinancing creditors consider are that the student should have completed his studies for which the student loan was availed. Thus, if you are still paying for your studies by availing amount from your student loan, it is likely that you would not qualify for the refinancing of the student loan.
The next criteria that most of the refinancing student loans companies stipulate are that, there should be a minimum amount outstanding in the student loan account. If the balance is less than what has been required, a person cannot avail a student loan.
It is very necessary to mention the book The Armchair Millionaire Guide that would definitely act as a total guide to the students when they want to go for the refinance and the consolidation of their student loans. It clears all the doubts of the person when he wants to go for the refinancing of a student loan or consolidate his student loan. Thus the apprehensions about the right time to get the student loan refinanced or consolidated, the amount that a person would save in the whole deal, the amount and the rate of interest that would by payable on the refinanced loan, where the such facility would be available, all other advantages related to the refinance and consolidation etc are thus cleared. A person can easily put through his doubt at http://www.armchairmillioniare.com. It is thus suggested here that a person who wish to refinance his student loans should consult this site so that he can gainfully do the refinancing and consolidation of the student loan.
So, go for the refinancing of your student loan
It can, thus, rightly be said that if a person is finding it very difficult to repay his student loan, he should go for the refinancing and consolidation of the student loan in order to reduce his monthly burden. Almost all the banks and other financial institutions provide the facility refinancing and consolidation of student loans.
Now, what does refinancing student loans means:
As we all know, students have to spend regularly on the purchase of books, various instruments, on making researches and on their movement from one place to another apart from the tuition fee and other establishment charges of various colleges and the universities in which they are studying.
There are many meritorious students who wish to go abroad to pursue higher studies. It is also not necessary that they belong to the affluent families. Does it mean that they do not pursue their studies further? The answer is -No, not at all. There are many refinancing student loans institutions like banks that provide various kinds of loans to the students. The student has to repay this loan on completion of his studies when he starts earning. Also, there are many students who wish to continue studies in their own country but they are not capable of depositing their tuition fee etc. Education loans etc are made for such students only. Also, while pursuing their higher studies, a student has to make many researches and have to submit project reports etc. For all these, the banks and other financial institutions provide loans.
As we all know that the student has to repay the refinancing student loans or education loans availed to complete their studies etc. Since the interest is also charged on such loans, a student has to repay the loan amount as well as the amount of interest charged on such loans. Just imagine a situation, where the student who has already availed a student loan, gets an opportunity to take another loan for repaying the old one and that too, at lower rate of interest. Doesn?t it sound good? Yes, of course it is. Any student would definitely like to avail such loan. This is called as the .refinancing of student loan...
There are certainly many advantages of getting the student loan refinanced. As discussed earlier, the main goal of the refinancing student loans is to reduce the amount of monthly installment that a student pays towards the student loans. This can be done by several ways as claimed by the various companies that help in consolidating the student loans. The two ways in which it can be done is that either the interest part of the repayment is reduced or the duration of the student loan is increased. In either case of the refinancing of a student loan, a student shall definitely relax. It should be noted here that if the duration is increased, no doubt it would attract higher rate of interest and eventually total amount repaid would be more, but the monthly installment is manageable.
Thus it can be said that consolidating the student loans is one of the way of refinance the student loans. If a student is studying in the United States, then it should be known that the federal student loans and the other private student loans are consolidated and thus, refinanced, separately. This is because of the fact that the federal loans attract lower rate of interest as compared to the private loans, which are disbursed considering as a personal loan and with the assumption that the student?s income would increase as his studies goes higher. If the above two loans are consolidated as a combined loan, the consolidated rate of interest would definitely be higher. It should be also told here that the federal rate of interest on student loans changes once in a year. Right now, there are low.
Now, let us understand the various requirements of various institutions and the finance companies that provide the refinancing of student loans.
The first criteria that almost all the refinancing creditors consider are that the student should have completed his studies for which the student loan was availed. Thus, if you are still paying for your studies by availing amount from your student loan, it is likely that you would not qualify for the refinancing of the student loan.
The next criteria that most of the refinancing student loans companies stipulate are that, there should be a minimum amount outstanding in the student loan account. If the balance is less than what has been required, a person cannot avail a student loan.
It is very necessary to mention the book The Armchair Millionaire Guide that would definitely act as a total guide to the students when they want to go for the refinance and the consolidation of their student loans. It clears all the doubts of the person when he wants to go for the refinancing of a student loan or consolidate his student loan. Thus the apprehensions about the right time to get the student loan refinanced or consolidated, the amount that a person would save in the whole deal, the amount and the rate of interest that would by payable on the refinanced loan, where the such facility would be available, all other advantages related to the refinance and consolidation etc are thus cleared. A person can easily put through his doubt at http://www.armchairmillioniare.com. It is thus suggested here that a person who wish to refinance his student loans should consult this site so that he can gainfully do the refinancing and consolidation of the student loan.
So, go for the refinancing of your student loan
It can, thus, rightly be said that if a person is finding it very difficult to repay his student loan, he should go for the refinancing and consolidation of the student loan in order to reduce his monthly burden. Almost all the banks and other financial institutions provide the facility refinancing and consolidation of student loans.
How Do I Refinance Student Loans? ???
Are you falling behind on your student loan payments and wonder if you can refinance your student loans?
When you refinance your student loans, you are basically renegotiating the terms of your loan. Most of the time, this involves consolidating your loans as well. When you refinance your loan, you are doing one or both of two things: lowering the interest rate, and/or extending your loan term.
Unlike student loan consolidation though, your credit score does affect how your loans get refinanced. Having a good credit history will help you increase the chances of getting lower interest rates. Also, a strong credit history will make your refinancing experience more hassle free with lenders.
You can refinance your student loans at most lenders or credit unions. It is important to make sure that whoever you decide to choose is a legit place. So when you’re looking at a bunch of lenders, you should do thorough research about the terms they want to give you. This way, you can choose what best fits your needs. You should be wary of small local lenders though. They can tease you with a really low rate when you find them online, but when you meet up with them in person, they might pressure you into refinancing with another rate instead. So do your homework, you’re trying to save money here, not get swindled.
Check out our student loan consolidatoin guide if you want to find out more about student loan consolidation.
When you refinance your student loans, you are basically renegotiating the terms of your loan. Most of the time, this involves consolidating your loans as well. When you refinance your loan, you are doing one or both of two things: lowering the interest rate, and/or extending your loan term.
Unlike student loan consolidation though, your credit score does affect how your loans get refinanced. Having a good credit history will help you increase the chances of getting lower interest rates. Also, a strong credit history will make your refinancing experience more hassle free with lenders.
You can refinance your student loans at most lenders or credit unions. It is important to make sure that whoever you decide to choose is a legit place. So when you’re looking at a bunch of lenders, you should do thorough research about the terms they want to give you. This way, you can choose what best fits your needs. You should be wary of small local lenders though. They can tease you with a really low rate when you find them online, but when you meet up with them in person, they might pressure you into refinancing with another rate instead. So do your homework, you’re trying to save money here, not get swindled.
Check out our student loan consolidatoin guide if you want to find out more about student loan consolidation.
How to Refinance Your Student Loans
Reducing loan payments through refinancing
The main goal of refinancing is usually to reduce your monthly student loan payments. There are several ways to do this, and most banks have student loan consolidation programs.
When refinancing your student loans there are several things to consider. First, you have both federal student loans and private loans, you will want to refinance them separately. Because of the way federal loans are structured, you can get a much lower interest rate on them than you can on private loans. Private student loans are basically personal loans made with the assumption that your income will increase with more education. If you mix the two together when you refinance, you will end up paying a higher interest rate on the combined principal than you would if you financed the two loans separately.
Second, student loan rates vary by lender and by your credit history. So, before your refinance make sure your credit history is in good shape. Review a credit report, and take action to fix problems. Then, compare rates from different lenders. Rates on for refinancing federal student loans change once a year (usually around July 1). Currently the rates are very low, but it's difficult to know how they will change as the economy changes.
What you need to qualify for low-interest rate refinancine fo your student loans
Each lender has different qualification requirements for refinancing. Most lenders require that none of your loans be in "in-school" status - that is, you cannot be currently paying for education using an active student loan. Some lenders have a minimum balance requirement, and that balance is arbitrary. To find out what each lender requires, visit the lendors listed above.
Two ways to reduce your student loan payments
When you refinance your student loans, you can reduce your monthly payments either by getting a lower interest rate, or by extending the duration of your loan. Of the two methods, getting a lower interest rate is preferable since you are also reducing your long-term student loan debt.
However, if your monthly payments are too high, extending the duration of your loan can be a big help. Effectively, you extend the period over which you repay your loans, so each payment is smaller. Longer terms, though, usually mean higher interest rates, and more interest payments. In the long run you end up paying more, but the payments are more managable.
Resources to Refinance Student Loans
Effects of Student Debt
Consolidating Federal Student Loans
Consolidation recommendations of the University of Michigan Law School
School loan consolidation - Eligibility information for refinancing (or not refinancing) your student loans.
The main goal of refinancing is usually to reduce your monthly student loan payments. There are several ways to do this, and most banks have student loan consolidation programs.
When refinancing your student loans there are several things to consider. First, you have both federal student loans and private loans, you will want to refinance them separately. Because of the way federal loans are structured, you can get a much lower interest rate on them than you can on private loans. Private student loans are basically personal loans made with the assumption that your income will increase with more education. If you mix the two together when you refinance, you will end up paying a higher interest rate on the combined principal than you would if you financed the two loans separately.
Second, student loan rates vary by lender and by your credit history. So, before your refinance make sure your credit history is in good shape. Review a credit report, and take action to fix problems. Then, compare rates from different lenders. Rates on for refinancing federal student loans change once a year (usually around July 1). Currently the rates are very low, but it's difficult to know how they will change as the economy changes.
What you need to qualify for low-interest rate refinancine fo your student loans
Each lender has different qualification requirements for refinancing. Most lenders require that none of your loans be in "in-school" status - that is, you cannot be currently paying for education using an active student loan. Some lenders have a minimum balance requirement, and that balance is arbitrary. To find out what each lender requires, visit the lendors listed above.
Two ways to reduce your student loan payments
When you refinance your student loans, you can reduce your monthly payments either by getting a lower interest rate, or by extending the duration of your loan. Of the two methods, getting a lower interest rate is preferable since you are also reducing your long-term student loan debt.
However, if your monthly payments are too high, extending the duration of your loan can be a big help. Effectively, you extend the period over which you repay your loans, so each payment is smaller. Longer terms, though, usually mean higher interest rates, and more interest payments. In the long run you end up paying more, but the payments are more managable.
Resources to Refinance Student Loans
Effects of Student Debt
Consolidating Federal Student Loans
Consolidation recommendations of the University of Michigan Law School
School loan consolidation - Eligibility information for refinancing (or not refinancing) your student loans.
Student Loan Debt Consolidation
Consolidate your loans into one easy monthly payment
Many people find it difficult to make all the payments on their existing student loans after they graduate college. This can lead to a bad credit score.
If you are struggling to make several payments on time, why not enjoy having one fixed payment every month? A personal, unsecured loan through Prosper can help you consolidate your college debts now.
Consolidate student loans, get a great rate
Federal or government-backed loans can help, but they may not cover everything. And once you graduate and the loans all come due at once, it can be quite overwhelming.
Our community of lenders at Prosper understands this. After you sign up and create a listing explaining your financial needs, lenders can bid on your listing. The bidding could even drive your interest rate down.
Once the bidding has ended and you arrive at the lowest interest rate, you decide whether to accept the loan or not. The entire process is transparent, and you remain in control.
Prosper has the loan for you. Apply now.
There's no need to refinance your home
In the past, many parents turned to home equity lines of credit for student loan consolidation. But now that those loans are less available, many people are looking for a direct solution outside of a government loan.
What is Prosper?
Prosper is an online community where people come together for lending and borrowing money. By bidding for loans, lenders can get great returns and borrowers can get great rates—and that helps everybody.
Tuesday, October 6, 2009
Refinance to Settle Your Debt
If you are finding yourself struggling to pay bills, you may find a great solution right within your own home. Do you own your house? If you own and do not rent, you may qualify for a refinance or home equity loan.
What does it mean to refinance my home or to get a home equity loan?
With a refinance, your home would be appraised to determine its current value. Let̢۪s say you purchased your home for $120,000 and it is now valued at $200,000, you have $80,000 in equity. This means if you sold your home for the appraised value, you could earn $80,000 in profit. You can use this equity to receive a refinance or home equity loan. The additional house value can go towards paying off your high interest loans.
Where do I go to refinance my home?
There are many financial institutions that handle home equity or refinance loans. Some ask for you to pay for appraisal and credit report fees, while others absorb the cost for you. Look for a program that works for you by calling around to a variety of financial institutions.
How will refinancing affect my mortgage?
Refinancing loans or home equity loans will make your monthly mortgage payment increase. Usually, the amount is slight and far less than what you are paying if you combine your mortgage payment with any credit card or line of credit payments. If your mortgage is $1,000 per month and you pay $600 a month in credit card and other loans, you may be able to refinance everything and pay a mere $1,300 a month. That is $300 a month you would then be able to put towards better things.
How does a home equity loan affect my mortgage?
Home equity loans are a little different from refinancing. With a home equity loan, you borrow against the additional value of your home. Usually, you have a shorter term of repayment with a home equity loan—generally ten or fifteen years. The payments still will be less expensive in most cases than paying your mortgage and credit card payments separately. Paying $200 to $300 toward your equity loan repayment is far less than the $600 you are currently paying.
What about the home equity line of credit?
A home equity line of credit is another option for settling your debt. With a home equity line of credit, you do not have a set repayment time limit. Usually, the line of credit remains open for ten years, during which you are only paying the interest. After ten years, the line of credit is restructured so that you are then paying interest plus an additional amount to reduce the loan amount.
Equity Home Loans
The point of this item before you is to support the readers who are sincerely concerned with "equity home loans" to understand and then make use of calculated methods concerning "equity home loans". Home loan as a line of credit
If the time comes that you are in need of a loan, one practical and efficient means of credit is a home equity line. To start, a equity loans can provide you a large amount of money with a comparatively small interest rate. In addition it provides you a degree of tax benefits unavailable from different ways of borrowing money.
Home equity lines of credit always require property to be promised as collateral against the loans. Obviously, this type of borrowing might endanger your home if you fail to pay a loan or even if you`re tardy with your monthly payments.
Credit with a `balloon payment`, that is, a large sum due when the entire loan is due, might cause you to borrow more money in order to repay the debt. It may put your house at risk, as well, if, during the procuring of the first advance, you are deemed not qualified for home equity loan. In the event that you sell your home, the conditions of the majority of loans will require you to pay off all obligations on your credit line at that. Though mortgage on line offer you quick money very simply, you might take loans more freely, as well.
Alternative to equity home loans
It`s good to remember that there are a lot of other ways to borrow capital besides home equity credit lines. Second mortgage installment loans are one such viable option. Surely, second mortgage plans put an additional future burden on your house or property, in terms of an extra home payment. But, the capital loaned is typically given as a single large payment, not as installments via continuing charges to a card or bank account. Also, a equity home loans generally includes a set rate and rigid monthly payments.
One more alternative, favored over borrowing money outright, is a credit extension that does not use your home for security. In the right circumstances, this might be available with a charge card, or an unprotected credit extension, letting you pay by check if you have to have cash. Information about loans for particular things, for example, purchasing an automobile or tuition fees, is obtainable whenever you need it.
In need for other links of information about Equity Home Loans?
Low Equity Home Loans Rates - complete guidelines - Low Interest Home Equity Line
Informative Lowest Equity Home Loans briefing
Informative Best Company Equity Home Loans review - Company Offer Equity Line Of Credit
Equity Home Loans Mortgage Lender: Equity Home Loans Lender`s overview
Equity Line Of Credit Financing Calculators
Equity Home Loans Calculator interesting data - Home Equity Credit Line Payment Calculator
Equity Home Loans Lowest Quotes
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Home Loan Mortage Refinance Loan
So now is not exactly the best time in the world to talk about mortgages and refinancing. In reality, people are so afraid of the current housing and mortgage market that they weep at the sound of moving money at all.
However, staying still at a time like this may be the worst thing possible for your business. As crazy as it might sound, if you have strong credit and are a business owner, now may be the best opportunity for you to expand via a refinance home equity loan. Interest rates are shockingly low and, although there is a credit crunch, there is and always will be a market for individuals with strong credit.
And growing your business is fantastic right now. Property costs are very low, there is competitiveness amongst employees as unemployment is on the rise, and construction costs are low as contractors are fighting to replace new construction losses. Getting in the right position now while the market is poor will allow you to catapult above the competition when the markets rebound.
The point is this - investing now when your competitors are weakend is a fantastic idea - and taking advantage of good interest rates and your home might be the right thing to do.
However, staying still at a time like this may be the worst thing possible for your business. As crazy as it might sound, if you have strong credit and are a business owner, now may be the best opportunity for you to expand via a refinance home equity loan. Interest rates are shockingly low and, although there is a credit crunch, there is and always will be a market for individuals with strong credit.
And growing your business is fantastic right now. Property costs are very low, there is competitiveness amongst employees as unemployment is on the rise, and construction costs are low as contractors are fighting to replace new construction losses. Getting in the right position now while the market is poor will allow you to catapult above the competition when the markets rebound.
The point is this - investing now when your competitors are weakend is a fantastic idea - and taking advantage of good interest rates and your home might be the right thing to do.
Home Equity
Want to pay off high-interest debt in one fell swoop? Searching for ways to pay for a basement renovation, a bathroom upgrade, or a new tile roof? Since you probably don't have that kind of money stuffed under your mattress, a natural place to look for more funds is in your single biggest asset: your home.
But before you tap into those funds, you need to know exactly what you're getting into. Putting your home at risk isn't for the uninformed or undisciplined.
Home equity loan vs. home equity line of credit
The first step to tapping into your home equity involves understanding your options. There are two major ones: a home equity loan (HEL) or a home equity line of credit (HELOC). Here's a handy guide to the basic differences between the two, including pros and cons.
Helpful tips on the HEL
A home equity loan is, at heart, a second mortgage. You receive a lump sum at a fixed rate of interest that's locked in when you procure the loan. You're expected to pay it back in fixed monthly payments for a fixed amount of time -- typically 10 to 15 years.
Pros:
•Your interest rate is fixed, which means no shocking increases later.
•Because payments are due monthly, this can be a good option if you have a hard time exercising the discipline needed to pay off a loan a little at a time on your own.
•The interest rate on a HEL, though higher than that on your primary mortgage, will still be lower than the rates available on credit cards.
•If you're using your HEL to pay off credit cards, in addition to lower interest rates, you'll have the benefit of consolidating all your debts into one payment.
•The interest on your home equity loan may be tax-deductible, but you'll want to thoroughly read Publication No. 936, the IRS's guidelines on the home mortgage interest deduction, to ensure the degree to which you're eligible. If your loan is for home-improvement purposes, rather than, say, college tuition, you're allowed even greater leeway in deducting the interest.
Cons:
•You borrow (and owe interest on) the whole amount, rather than being able to simply borrow what you need.
•If you're using the equity to fund something that will involve multiple payments over time -- say, for example, a phased home-improvement project or quarterly payments on college tuition -- you'll have to be sure not to spend the money on other things in the interim.
•If you use your HEL to fund something that immediately depreciates, such as a car or new furniture, you may hurt your net worth in the long term. Boosting the value of your home has a better chance of enhancing your overall financial picture over the long haul.
•You may be prohibited from renting out your home, according to your loan terms.
•You risk losing your home if you can't make the payments.
Hello, HELOC
A home equity line of credit, by contrast, functions more like a credit card -- using your home as collateral. You ask for a line of credit, and the lender assigns a maximum amount you can borrow -- a credit limit. Lenders typically determine this amount by taking a percentage of your home's appraised value and subtracting the amount you still owe on the mortgage; then they factor in things such as your credit history, debt load, and income. The lender then gives you a set of blank checks or a credit card that you can use to withdraw funds.
Unlike a HEL, the line of credit allows you to borrow what you need, when you need it, up to the full amount approved. So why wouldn't everyone want to apply for a HELOC in case an emergency strikes? Take a look at the pros and cons to see for yourself.
Pros:
•You don't have to borrow in a lump sum; you can withdraw the funds when you need them.
•HELOCs can be used as emergency funds in the event of a crisis, like losing your job, since you can access funds on an ongoing basis as needed.
•Some lenders may allow you to convert to a fixed rate of interest, or to a fixed-term installment loan, for part or all of your balance.
•The rates of interest, though variable, may still be lower than other forms of consumer credit, since they are secured with collateral -- your home.
•The interest on your HELOC may be tax-deductible, just as it is for the HEL, but consult IRS Publication No. 936 for confirmation of what applies to your particular circumstance.
Cons:
•HELOCs typically have variable interest rates tied to the prime rate, so you could end up owing a much higher balance than you had anticipated.
•The terms of a HELOC may dictate that you must begin withdrawing funds within a certain time period, and that you withdraw a minimum each time.
•The costs of securing a HELOC aren't pocket change. Expect to pay for a current property appraisal, an application fee, closing costs, and other possible charges, including points on your loan. You may also be subject to transaction fees every time you withdraw money.
•Though the HELOC offers flexibility in terms of when you withdraw funds, there is no flexibility in terms of the end date. When the term of your loan expires, the balance of the loan is due in full. If you procrastinate or have difficulty making regular payments over the long haul, you may be hit with an excessively large bill at the end.
•Lenders make it very easy to access the funds; you have to be disciplined enough to resist unless there's an emergency or a planned expenditure that's worthy of risking your home.
•You may be prohibited from renting out your home, according to your loan terms.
•You can damage your credit and lose your home if you're unable to repay on schedule.
Conclusion
Before you rush to apply for a home equity loan or line of credit, first give serious consideration to whether you really need the funds. The terms can sound enticing, and the money seems relatively easy to get, but it all may be too easy. If you've ratcheted up high-interest debt and now see your home equity as a way to deal with the problem, you need to recognize that the loan is just a temporary fix. Clearing the decks so you can start spending again will be destructive to your financial health.
Whether it's a HEL or a HELOC, consider yourself a good candidate only if you have the discipline to use the funds for a dedicated purpose, you're spending the money on something of vital importance, and you can repay on time. If that's you, tapping into home equity can be a useful strategy for accomplishing your goals.
But before you tap into those funds, you need to know exactly what you're getting into. Putting your home at risk isn't for the uninformed or undisciplined.
Home equity loan vs. home equity line of credit
The first step to tapping into your home equity involves understanding your options. There are two major ones: a home equity loan (HEL) or a home equity line of credit (HELOC). Here's a handy guide to the basic differences between the two, including pros and cons.
Helpful tips on the HEL
A home equity loan is, at heart, a second mortgage. You receive a lump sum at a fixed rate of interest that's locked in when you procure the loan. You're expected to pay it back in fixed monthly payments for a fixed amount of time -- typically 10 to 15 years.
Pros:
•Your interest rate is fixed, which means no shocking increases later.
•Because payments are due monthly, this can be a good option if you have a hard time exercising the discipline needed to pay off a loan a little at a time on your own.
•The interest rate on a HEL, though higher than that on your primary mortgage, will still be lower than the rates available on credit cards.
•If you're using your HEL to pay off credit cards, in addition to lower interest rates, you'll have the benefit of consolidating all your debts into one payment.
•The interest on your home equity loan may be tax-deductible, but you'll want to thoroughly read Publication No. 936, the IRS's guidelines on the home mortgage interest deduction, to ensure the degree to which you're eligible. If your loan is for home-improvement purposes, rather than, say, college tuition, you're allowed even greater leeway in deducting the interest.
Cons:
•You borrow (and owe interest on) the whole amount, rather than being able to simply borrow what you need.
•If you're using the equity to fund something that will involve multiple payments over time -- say, for example, a phased home-improvement project or quarterly payments on college tuition -- you'll have to be sure not to spend the money on other things in the interim.
•If you use your HEL to fund something that immediately depreciates, such as a car or new furniture, you may hurt your net worth in the long term. Boosting the value of your home has a better chance of enhancing your overall financial picture over the long haul.
•You may be prohibited from renting out your home, according to your loan terms.
•You risk losing your home if you can't make the payments.
Hello, HELOC
A home equity line of credit, by contrast, functions more like a credit card -- using your home as collateral. You ask for a line of credit, and the lender assigns a maximum amount you can borrow -- a credit limit. Lenders typically determine this amount by taking a percentage of your home's appraised value and subtracting the amount you still owe on the mortgage; then they factor in things such as your credit history, debt load, and income. The lender then gives you a set of blank checks or a credit card that you can use to withdraw funds.
Unlike a HEL, the line of credit allows you to borrow what you need, when you need it, up to the full amount approved. So why wouldn't everyone want to apply for a HELOC in case an emergency strikes? Take a look at the pros and cons to see for yourself.
Pros:
•You don't have to borrow in a lump sum; you can withdraw the funds when you need them.
•HELOCs can be used as emergency funds in the event of a crisis, like losing your job, since you can access funds on an ongoing basis as needed.
•Some lenders may allow you to convert to a fixed rate of interest, or to a fixed-term installment loan, for part or all of your balance.
•The rates of interest, though variable, may still be lower than other forms of consumer credit, since they are secured with collateral -- your home.
•The interest on your HELOC may be tax-deductible, just as it is for the HEL, but consult IRS Publication No. 936 for confirmation of what applies to your particular circumstance.
Cons:
•HELOCs typically have variable interest rates tied to the prime rate, so you could end up owing a much higher balance than you had anticipated.
•The terms of a HELOC may dictate that you must begin withdrawing funds within a certain time period, and that you withdraw a minimum each time.
•The costs of securing a HELOC aren't pocket change. Expect to pay for a current property appraisal, an application fee, closing costs, and other possible charges, including points on your loan. You may also be subject to transaction fees every time you withdraw money.
•Though the HELOC offers flexibility in terms of when you withdraw funds, there is no flexibility in terms of the end date. When the term of your loan expires, the balance of the loan is due in full. If you procrastinate or have difficulty making regular payments over the long haul, you may be hit with an excessively large bill at the end.
•Lenders make it very easy to access the funds; you have to be disciplined enough to resist unless there's an emergency or a planned expenditure that's worthy of risking your home.
•You may be prohibited from renting out your home, according to your loan terms.
•You can damage your credit and lose your home if you're unable to repay on schedule.
Conclusion
Before you rush to apply for a home equity loan or line of credit, first give serious consideration to whether you really need the funds. The terms can sound enticing, and the money seems relatively easy to get, but it all may be too easy. If you've ratcheted up high-interest debt and now see your home equity as a way to deal with the problem, you need to recognize that the loan is just a temporary fix. Clearing the decks so you can start spending again will be destructive to your financial health.
Whether it's a HEL or a HELOC, consider yourself a good candidate only if you have the discipline to use the funds for a dedicated purpose, you're spending the money on something of vital importance, and you can repay on time. If that's you, tapping into home equity can be a useful strategy for accomplishing your goals.
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