To begin with, it might be helpful to discuss definition of terms. The act of home refinancing involves applying for a secured loan to pay off a loan that has already been secured with a piece of property or other assets. If your initial loan had a high interest rate, it only makes sense that you would be interested in a loan with a lower rate of interest.
The most common type of mortgage refinance comes in the form of a second home loan. In order to determine if such a loan is appropriate in your particular case, you first need to ascertain whether you’ll be saving more on interest than you’ll be paying out in refinancing fees. As an added bonus, you may find that you can obtain additional cash while decreasing the amount you need to spend on your mortgage payments. Home refinance loans can be an attractive option because it allows you to use the equity in your house to your best advantage.
Solving the Interest Rate Puzzle
It’s important for you to understand how rates on home purchases are determined. The rate you pay is customarily based upon the prevailing interest rate, along with other considerations such as the amount of your down payment and your personal credit rating. Interest rates can fluctuate, based upon the decisions of the Federal Reserve Board. When you refinance, you trade a higher interest rate for a lower rate and decrease your monthly payment in the process.
Cutting the Length of Your Loan
It’s also possible to reduce the length of your loan through refinancing. With a mortgage refinancing plan, you can change your term from a 30-year period to a ten or 15-year period. In the process, you can save a substantial amount of interest. If you keep your same monthly payment amount but obtain a lower interest rate, you will be paying more on the principal of the loan each month, allowing you to enhance the equity in your home.
Debt Consolidation
You can also use your home to obtain debt consolidation in the form of a home equity loan. This enables you to combine your high-interest loans to create a single loan with lower interest and a manageable down payment. Your property acts as security for the loan. Until you pay off the home equity loan, the lender will have a lien on your home. With such a loan, you can be protected from creditors and avoid the problem of having to declare bankruptcy.
A Noteworthy Tax Advantage
One important thing to keep in mind about home equity loans is that the interest on such a debt consolidation loan may be tax deductible. Check with your tax accountant to see if your interest can be fully deducted. You may be pleasantly surprised at the answer.
Recent Related News
Government Works to Reduce Foreclosure Rate
Members of Congress are calling for a renewed government effort to reduce the rate of home foreclosures in the country. [6th December 2007]
Housing Shortage Causes Crisis for Renters
The Center for Housing Policy notes that the number of renting families who are shelling out more than half of their household income for housing has skyrocketed to 2.1 million since 1997.[16th October 2007]
Foreclosures Skyrocket Once Again
The housing market took a substantial hit in August, as the number of foreclosure filings doubled over the previous August's totals. The increase also represents a 36% rise from the July totals. [5th October 2007]
Foreclosures on the Rise
Foreclosures reached a record amount in the spring—the result of the collapse of the subprime mortgage market.[29th September 2007]
National Economic Picture Brightens
The U.S. economic picture brightened this past spring, thanks to an expansion in the gross domestic product. Still, the national housing crisis and problems within the credit card industry mean there continue to be clouds on the horizon.[19th September 2007]
Monday, January 28, 2008
Paying for a remodeling project with a home loan is usually a good idea. But choosing exactly the right type of mortgage instrument may require some planning and calculation.
One of the smartest ways to use a mortgage is to pay for a remodel, upgrade, room addition, or repair to your home. By borrowing against the equity in your property to enhance its value, you essentially grow equity without any out-of-pocket expense. The key to success is to choose your loan carefully.
Refinance or second mortgage
Depending upon how much interest you're paying on your first mortgage, you may or may not want to refinance it to fund the project. If the existing mortgage has a cheaper rate than you can get today, hold on to it, and use a second mortgage to pay for the remodel. Pay off the second mortgage-and the higher interest-as soon as possible, to avoid paying steep finance charges.
On the other hand, if your existing loan is an adjustable-rate mortgage (ARM), interest-only loan, or other variety where the interest rate rises, you might be wise to refinance to a less volatile and conventional fixed-rate mortgage (FRM). Roll your remodeling costs into the new loan, and capture a better rate for your mortgage as well as your remodeling project.
Planning for a sale
If you're fixing up your place in order to sell it within the next three to five years, you won't be around long enough to reap the long-term benefits of a 30-year FRM. For the sake of argument, if you plan to remodel this year, and sell it a year from now, you might as well get the cheapest loan available. Consider an ARM with a low 2-year introductory rate. You'll save money, because you'll have already paid it off by selling your home before the loan resets to a higher rate.
Borrow based on cash flow
If you're paying your contractors or suppliers in phases, you don't need a large lump sum up front. A home equity line of credit (HELOC), which works like a credit card and lets you withdraw only when you need the cash, may be your best option. You may pay slightly higher interest, but you won't pay anything until you actually use the money. This could cost less overall than if you took out a loan in the beginning and paid interest for the entire length of the project.
Ultimately, don't forget to stick to your plan. One of the most common and costly mistakes homeowners make is that they keep expanding the original project. Soon it grows out of proportion, and the budget overruns totally offset any smart strategies that they had regarding borrowing the money with a lower interest rate.
One of the smartest ways to use a mortgage is to pay for a remodel, upgrade, room addition, or repair to your home. By borrowing against the equity in your property to enhance its value, you essentially grow equity without any out-of-pocket expense. The key to success is to choose your loan carefully.
Refinance or second mortgage
Depending upon how much interest you're paying on your first mortgage, you may or may not want to refinance it to fund the project. If the existing mortgage has a cheaper rate than you can get today, hold on to it, and use a second mortgage to pay for the remodel. Pay off the second mortgage-and the higher interest-as soon as possible, to avoid paying steep finance charges.
On the other hand, if your existing loan is an adjustable-rate mortgage (ARM), interest-only loan, or other variety where the interest rate rises, you might be wise to refinance to a less volatile and conventional fixed-rate mortgage (FRM). Roll your remodeling costs into the new loan, and capture a better rate for your mortgage as well as your remodeling project.
Planning for a sale
If you're fixing up your place in order to sell it within the next three to five years, you won't be around long enough to reap the long-term benefits of a 30-year FRM. For the sake of argument, if you plan to remodel this year, and sell it a year from now, you might as well get the cheapest loan available. Consider an ARM with a low 2-year introductory rate. You'll save money, because you'll have already paid it off by selling your home before the loan resets to a higher rate.
Borrow based on cash flow
If you're paying your contractors or suppliers in phases, you don't need a large lump sum up front. A home equity line of credit (HELOC), which works like a credit card and lets you withdraw only when you need the cash, may be your best option. You may pay slightly higher interest, but you won't pay anything until you actually use the money. This could cost less overall than if you took out a loan in the beginning and paid interest for the entire length of the project.
Ultimately, don't forget to stick to your plan. One of the most common and costly mistakes homeowners make is that they keep expanding the original project. Soon it grows out of proportion, and the budget overruns totally offset any smart strategies that they had regarding borrowing the money with a lower interest rate.
Mortgage Refinancing
Refinancing is when you apply for a secured loan in order to pay off another different loan secured against the same assets, property etc. If this original loan had a fixed interest rate mortgage which has now declined considerably, then you would like to avail of a new loan at a more favorable interest rate.
When is Refinancing an Option
Typically home refinancing is done when you have a mortgage on your home and apply for a second loan to pay off the first one. While taking the decision to go for the home refinancing option, it is important to first determine whether the amount you save on interests balances the amount of fees payable during refinancing.
Benefits of Home Refinancing
Imagine a scenario where you can have access to extra cash, while simultaneously lowering your monthly mortgage payment. This dream can become a reality through mortgage refinancing.
A house is the largest asset you may ever own. Likewise, your mortgage payment may be the largest expense you'll have in your monthly budget. Wouldn't it be great to use this asset to reduce your monthly payment and put extra cash in your pocket? When you refinance your mortgage, you can take advantage of the equity in your home and enable this to take place.
Lower Refinance Rate, Lower Payments
When you purchased your dream home, the financial environment dictated interest rates. While certain factors, like your credit rating and the amount of the down payment that you were able to afford, influenced your interest rate, the single most important factor was the prevailing rates at that moment. However, interest rates fluctuate. When the Federal Reserve enters a rate-cutting period, the prevailing rates may become significantly lower than when you originally purchased your home.
By refinancing your mortgage when interest rates are lower, you can exchange a higher interest rate for a lower one, which, in turn, will lower your monthly payment.
Shorten the Length of Your Mortgage when Refinancing
Another advantage of home refinancing is that you can shorten the term of your mortgage. Let's say, for example, that you originally had a 30-year mortgage and have been paying it for eight years. Thanks to mortgage refinancing, you can switch to a shorter term of either 10, 15 or 20 years. This can save you thousands of dollars of interest. Also, if the refinance rate is lower, but you maintain the same monthly payment, you will build up equity in your home more quickly, because more of your payment will be going towards principal.
Exchange an Adjustable Rate for a Fixed Refinance Rate
When interest rates are low, adjustable rate mortgages (ARMs) are the housing market's darlings. However, as interest rates increase, that adjustable rate may not look as sweet. It's also possible that you opted for an ARM because your financial future was less secure, or you weren't sure how long you'd stay in your home. If, however, you've become financially stable and know that you'll be staying in your home for several years, it may be beneficial to swap that fluctuating adjustable rate for a fixed one. You'll have more security knowing that your monthly payment will remain steady, regardless of the current market environment.
Access to Extra Cash - Cash-out refinancing
One way to put more money in your pocket is to tap into the equity you've built in your home and do a "cash-out" refinancing. In this scenario, you can refinance for an amount higher than your current principal balance and take the extra funds as cash. This can provide money for remodeling your home, paying off high-interest rate bills, or sending your kids to college.
Bye, Bye PMI
If you were unable to make a down payment of 20 percent when you purchased your home, you may have been required to purchase Private Mortgage Insurance (PMI). If your house has appreciated since then, and you've steadily paid down your mortgage, your equity may now be more than 20 percent. If you refinance, you will no longer need PMI.
In many ways, your house is like a cash cow. If you have discipline and knowledge of the benefits of refinancing, you can tap into its milk for years to come.
To find the best refinance loan offers complete our short form. You will find lenders and brokers that offer home refinance loans in California, Florida and all other states.
When is Refinancing an Option
Typically home refinancing is done when you have a mortgage on your home and apply for a second loan to pay off the first one. While taking the decision to go for the home refinancing option, it is important to first determine whether the amount you save on interests balances the amount of fees payable during refinancing.
Benefits of Home Refinancing
Imagine a scenario where you can have access to extra cash, while simultaneously lowering your monthly mortgage payment. This dream can become a reality through mortgage refinancing.
A house is the largest asset you may ever own. Likewise, your mortgage payment may be the largest expense you'll have in your monthly budget. Wouldn't it be great to use this asset to reduce your monthly payment and put extra cash in your pocket? When you refinance your mortgage, you can take advantage of the equity in your home and enable this to take place.
Lower Refinance Rate, Lower Payments
When you purchased your dream home, the financial environment dictated interest rates. While certain factors, like your credit rating and the amount of the down payment that you were able to afford, influenced your interest rate, the single most important factor was the prevailing rates at that moment. However, interest rates fluctuate. When the Federal Reserve enters a rate-cutting period, the prevailing rates may become significantly lower than when you originally purchased your home.
By refinancing your mortgage when interest rates are lower, you can exchange a higher interest rate for a lower one, which, in turn, will lower your monthly payment.
Shorten the Length of Your Mortgage when Refinancing
Another advantage of home refinancing is that you can shorten the term of your mortgage. Let's say, for example, that you originally had a 30-year mortgage and have been paying it for eight years. Thanks to mortgage refinancing, you can switch to a shorter term of either 10, 15 or 20 years. This can save you thousands of dollars of interest. Also, if the refinance rate is lower, but you maintain the same monthly payment, you will build up equity in your home more quickly, because more of your payment will be going towards principal.
Exchange an Adjustable Rate for a Fixed Refinance Rate
When interest rates are low, adjustable rate mortgages (ARMs) are the housing market's darlings. However, as interest rates increase, that adjustable rate may not look as sweet. It's also possible that you opted for an ARM because your financial future was less secure, or you weren't sure how long you'd stay in your home. If, however, you've become financially stable and know that you'll be staying in your home for several years, it may be beneficial to swap that fluctuating adjustable rate for a fixed one. You'll have more security knowing that your monthly payment will remain steady, regardless of the current market environment.
Access to Extra Cash - Cash-out refinancing
One way to put more money in your pocket is to tap into the equity you've built in your home and do a "cash-out" refinancing. In this scenario, you can refinance for an amount higher than your current principal balance and take the extra funds as cash. This can provide money for remodeling your home, paying off high-interest rate bills, or sending your kids to college.
Bye, Bye PMI
If you were unable to make a down payment of 20 percent when you purchased your home, you may have been required to purchase Private Mortgage Insurance (PMI). If your house has appreciated since then, and you've steadily paid down your mortgage, your equity may now be more than 20 percent. If you refinance, you will no longer need PMI.
In many ways, your house is like a cash cow. If you have discipline and knowledge of the benefits of refinancing, you can tap into its milk for years to come.
To find the best refinance loan offers complete our short form. You will find lenders and brokers that offer home refinance loans in California, Florida and all other states.
Subscribe to:
Posts (Atom)