Is It Worthwhile To Save Money by Refinancing?

Refinancing may actually seem more attractive than it actually turns out to be in the long run. Therefore it’s best to evaluate the savings in detail before taking a decision.

What comes first to the mind if you are asked what refinancing a mortgage will provide you with? The most common answer will be it will help you save money but aren’t there so many other ways of doing that. Saving money is achievable through so many ways depending on your ultimate goal. So when you refinance a mortgage what is the first benefit that you get? It’s the fact that you get a lesser rate of interest which directly means that you can save money that you used to spend on the higher rate of interest before.

But, it does not happen to be as simple as it sounds because when you refinance a mortgage it is same as when you take out a new one therefore each time you do it you have to pay the additional costs like the closing costs and origination fees. These fees all rolled into one can sum up to 3 to 6% of your mortgage amount. So if you really want to save money out of the refinancing deal it is important that you remain in the new mortgage for a time long enough that the lower new rates of interest will be able to save you an amount that will be more than what you spent on the refinancing. This whole ordeal takes a lot of time sometimes even a couple of years hence, you need to be patient. You can calculate exactly how long will it take by using a mortgage calculator. You also need to remember that if you quit on the mortgage before this time period you will end up saving nothing.

The other reason why people opt for refinancing is when they are planning to pay off their debt sooner. It can also be done by increasing the frequency of your installments. When you opt for a shorter term of repayment you facilitate yourself with a considerably lower rate of interest. This shorter repayment term will provide you with a financial commitment towards a sooner payoff which you won’t find in voluntary accelerated payoffs. click here and It need not be said that you have to consider how much you’ll save with respect to the closing cost here too just so that you’ll know how much you’ll be able to save when you reach your breakeven point.

Another way is extending the repayment period. Some people tend to opt for this method in order to lessen the amount that they have to pay each month. The most common reason people have for doing so is when they are undergoing serious financial constraints whether due to increased expenses or loss of income. Surely there is the upside of having less amount to pay each month but a very significant downside is there too where you end up paying more interest than you were ever meant to during this extended course of repayment term. Now you can counter this by getting a lower rate of interest but there will still be the issue of your breakeven point being delayed than what would have been achieved if you have kept the original duration.

Another reason for refinancing can be the conversion of ARM to fixed rate mortgage. No doubt ARMs provide low rate of interest initially but once they start changing the rate of interest after a few years it gets more and more financially unsound. This will also save you from the side effects of balloon payments and the like. Whenever you take out a loan a fixed rate is always good for you.

Quite often cases are seen where people have more than one mortgage on their house sometimes because they took two or more home equity loans or maybe they opted for the piggyback loans whichever be the case the interest rate on the smaller mortgage happens to be at least two percentages higher than the primary mortgage. This only gets cumbersome and difficult to manage over a period of time, refinancing a loan helps you to roll the rates of interest of both the mortgages into one so that the repayment becomes more convenient.

In case you happen to have a lot of equity in your house you can use that to your benefit by taking a loan against it when you are refinancing. This has become quite rare over the years but it certainly is an advantageous proposition simply because a cash-out refinance will allow you to borrow loans at very low interest rates which will additionally be tax deductible since it is a part of your mortgage. You just need to remember that you will be paying back these loans in the life span of the mortgage plan and hence you need to consider the whole plan in the light of what savings you can make out of it.

Sometimes when people do not have much equity in their homes may be due to the declining value of the property they opt for cash-in refinance so as to achieve the level of equity standards that they need to have to qualify for a refinance. In this method however you need to consider and be sure of the fact that the value will increase or at least stay the same as present otherwise there is no sense spending money over something whose value is just going to fall further.

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Home: Abode and Intrinsic Equity-Based Asset

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Home, the comfortable, warm and protective abode – to most of us – is the single biggest asset we have!

Home is what backs you up when you need to borrow money, making it one of the greatest advantages of owning it in the first place. During the pre- recession years, there was a major boom in the amount of people looking to use their homes to get access to extra money when they needed it most. One of the ways they did this was through second mortgages and equity lines of credit.

Second mortgage loans are loans made in addition to the first mortgage, and they are usually based on the equity a borrower has built up his/her home. The most common uses for second mortgages and equity loans were to fund home renovations, college education for children and extended medical expenses, although some borrowers had a tendency to abuse the process by refinancing multiple times due to the rapid increase in property values during that period.

Processing of secondary loans and lines of credit was much simpler then and would be today for the same reason, if there was enough equity in homes based on today’s values; and that is since the borrower would have already gone through the mortgage borrowing process once, the underwriting required to get a second mortgage would not be as tense an experience for the borrower.

The cost of these types of transactions will be lower than when the borrower applied for the original mortgage loan. Provided there is enough equity in the home to support a secondary financing, the upfront costs to a borrower seeking this type of financing would be greatly reduced because there is no need for a down payment; the loan amount is much smaller making a percentage of the loan amount proportionately less; and – although the interest rate will be higher in most cases – the amount paid in interest over the life of the loan is much less due to the shorter term (usually 10 to 15 years).

One thing to keep in mind when considering a second mortgage is not take a second mortgage unless payments on the original mortgage balance were made on time for a considerable amount of time. Since the prospects for obtaining a “piggy back” 100% LTV (Loan to Value) mortgage loan are near to non-existent in this post-recession economy.

When a borrower obtains a second mortgage loan the lender places a lien on the primary residence of that borrower (second mortgages on properties other than the primary residence are doubtful). This lien will be recorded in 2nd position after the primary or 1st mortgage lender’s lien, hence the term second mortgage. Second mortgages aren’t for everyone, though.

Borrowing more than 80% of the home’s value for a first mortgage will subject the borrower to private mortgage insurance. The monthly payments will obviously also be a factor. However, it is not recommended that a homeowner (or home buyer for that matter) attempt to obtain 2nd mortgage financing with an above 80% LTV ratio. This will lead to excessive costs if there is such a loan type available.

Proceeds from a second mortgage loan can be used for just about anything these days. Many consumers take out 2nd mortgage loans to consolidate debt, do home improvements or provide a college education for their children, as others did in past years. Whatever a second mortgage borrower decides to do with the loan proceeds it is important to remember that defaulting on the payments can lead to foreclosure and eventual loss of the home.

So an individual making application for a second mortgage would want to make sure that s/he is taking the loan out for a worthwhile purpose. A secondary mortgage loan can be of great help to the borrowers, although the borrower must take steps to ensure that s/he does not squander away the advantages (or proceeds) of the second mortgage, when available.

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How mortgage refinance can be beneficial for your real estate deal?

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Every real estate investor has to agree with the fact that it’s not possible to manage a mortgage loan successfully without getting help of refinance. Not only troubled homeowners but investors who desire to make more money with real estate investment may also relish the benefits of mortgage refinance.

How mortgage refinance may help in real estate investment?

Many people generally have the idea that they can opt for mortgage refinance only when facing troubles with their mortgage loans. This isn’t completely true. You can refinance your mortgage loan whenever you want and for any probable reason. Now, you must be wondering, apart from making your mortgage loan affordable, what else mortgage refinance may do for you. Go through the following benefits to get an idea.

  1. Lowers interest rates and lets you save: Mortgage refinance undoubtedly helps by lowering the interest rate. With low interest rates you get to save more. For general homeowners the amount saved increases the payment for mortgage loan and for real estate investor, it turns out to be the down payment for another real estate property. So you can see, mortgage refinance actually makes your loan even more reasonable and you may refinance to earn some extra profit.

  1. Makes equity available to you: Refinance also helps you to access the equity in your property. if you have some home improvement plans in your mind or need money immediately to fulfill any financial obligation, then cash-out refinance is what you must look for. Make sure to use the equity cleverly. Remember, you’ll have to pay off the money you’ll take out from the equity in your property. So, the load will be there always. Just be careful while using the equity in your property and make the most of mortgage refinance.

  1. Changes the terms as per your convenience: Mortgage loans come with different terms like fixed rate and adjustable rate mortgage terms. At any point of time, if you feel your existing loan term to be inconvenient, then you can easily change the term by refinancing. This will even help you to manage your finances well.

These are the 3 chief benefits that you may relish by refinancing your mortgage loan.

How can you get all the probable benefits of refinance?

To get all the benefits of mortgage refinance you need to take all the necessary steps quite carefully. Apart from following the right procedure you must also make it a point to keep some simple facts in mind. The facts are like these:

  • Check your credit score before deciding to refinance.

  • Search well to get the most profitable interest rate.

  • Try to convince your original creditor first.

  • Arrange all of your essential financial documents from beforehand to save time.

  • Refinance when the market is right.

  • Manage your mortgage loan efficiently to prove your credibility.

You must definitely keep these facts in mind to make mortgage refinance a hassle free and profitable process. So just start your research to find out the best lender and refinance your mortgage loan to make your real estate deal ultimately profitable.

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