BLOG

What you need to Know about Refinancing ?

What is refinancing?

What do people mean when they say they refinanced their mortgage? Let's put it simply as the process whereby they replace their existing mortgage with a new loan.

Refinancing is done when a person takes on a new loan as a replacement for their existing mortgage on a property so that they benefit from a lower monthly payment than they've been paying and a lower interest rate. To refinance, you can also change your loan program from an adjustable-rate mortgage to a fixed-rate mortgage. Refinancing also serves as an access to funds for offsetting other debts, renovating your home etc by leveraging your home's equity.

Whatever your need for a refinances, the process is the same as when you applied for your mortgage at first. What you need to get done is to research the loan options you have, collect the necessary documents, submit an application for a mortgage refinance, and wait for approval of your refinance application.

Types of Refinance

There are different types of refinance options you can choose depending on what you aim to achieve with your refinancing.

Some of these refinancing options are:

Home equity cash out: This means that you will extract the equity from your home. If this equity is extracted as a means for you to make repairs or other improvements on your home, the expense of the interest might be deductible from your tax.

Loan duration changing: This refinancing option reduces the duration you have to offset your mortgage and helps you pay less interest on the loan over the long run. This refinance option helps you lower the duration of your mortgage payment to monthly payments at lower rates and allows you to pay up more quickly to give you outright ownership to your own at a nearer date.

Reduction in rate: If the mortgage rate falls, you can take a refinancing option to make your monthly loan payments more reduced than before.

Changing the loan structure: This option helps people who are paying a flexible amount on their mortgage to change to a fixed-rate loan when they have built up their equity and can afford to be faithful to a fixed-rate loan payment.

Mortgage insurance requirement removal: There are specific loan programs that require mortgage insurance even if you have built up a good amount of equity. Taking a loan to refinance might help you out of this fix as conventional loans no longer require PMI once you have up to 20% equity on your property.

Before you refinance

Refinancing is not always the answer to your situation. Even though it carries a lot of benefits, refinancing has its risks which you must weigh up before making the decision to refinance your mortgage.

An example is when you take a new, say, 30 years mortgage on your property after you've gone five years into the payment of the existing mortgage. You will, this way, be paying the mortgage for 35 years because refinancing a mortgage always require that you start your amortization process all over. While this might be satisfactory to some people, it won't be satisfactory if you are already 10 to 15 or 20 years into your mortgage payment.

If you, however, need to refinance at this stage, then you should go a shorter-term loan that will not make your mortgage payment time to extend. You can take like a 15-year mortgage or thereabout. This will even come at a lower rate than your initial 30-year mortgage plan.

So, you have to ensure that your mortgage refinancing will offer you a lower interest rate than what is offered by your current mortgage. Also, you should ensure that the total amount you'll be saving on the refinancing exceeds the cost of the refinance.

When to Refinance?

Now that you've weighed in the risk of your refinance, you must be sure that the time is good for your refinance decision.

Most financial-aid services and banks will require that you've maintained your original mortgage for 12 years before you can apply for a refinance. Terms and conditions vary according to Institutions, however, which necessitates that you find out the right time to refinance from your specific lender or bank.

Quick advice here; although it is not compulsory to stick to your original lender when refinancing, it is better you don't refinance from a new company. The reason is that you stand a better chance of getting better rates when you stick with your original lender.

How to Refinance?

To refinance your mortgage, the first thing you must do is determine how you will repay your loan. If you will be using the equity on your property to renovate the property to increase its value, then you might consider the increased revenue on the sale of such property as a repayment option.

If you will, however, be using the loan for something else, you must be very sure and deliberate about how exactly you will be able to offset the loan over time.

Once you've made up your mind on that, you will need to contact your mortgage company to discuss your options. You can also contact other mortgage companies to weigh your choices. It is also benefitting to have an attorney handle some of the paperwork for the refinancing to ensure your satisfaction is well emphasised in the deal. The attorney will also be in the best position to handle the complicated aspects of the refinancing process.

If after all these, you find out that for a reason or another, you can not benefit from or get a refinance on your property mortgage, you would have been better informed about what you need to do to get a refinance and can give it a shot at a later date.

The Benefits of Refinancing

Refinancing is the process of getting a new loan to replace an existing mortgage for different reasons. Refinancing can help you raise money to get some things done. Some of the known benefits of refinancing include:

Getting a lower monthly payment: If you want the interest rate and overall payment on your mortgage, it might be just perfect to pay one or two points if you intend to stay in the house for many years to come. In the long run, the cost of the mortgage financing will be offset by the savings you'd have made from the lower monthly payments. If, however, you are planning to move from the property to a new one, this means you might not stay long enough in the present home and you might not be able to cover the refinancing cost. For this reason, you must first calculate a break-even point that will help you determine if you should or should not take the loan refinance option.

Helps you move from an Adjustable Rate Mortgage to a Fixed Mortgage: If you are willing to risk upward market adjustment, Adjustable Rate Mortgages are the best to get a lower initial monthly payment. ARMS are also suitable if you don't plan to own the property for a long while. If you, however, will be staying permanently in your home for a long time, or maybe permanently even, then moving from an ARM to a Fixed Rate Mortgage payable in 30, 15, or 10 years as you can handle will be way better.

Helps Avoid balloon payment: ARMs and other Balloon payment options might be a good way to lower initial payments on your mortgage. When you get to an end of the Fixed-rate term, usually 5 to 7 years, and you still own the property, then all remaining balance on the mortgage will become payable. At this point, you can quickly and easily switch to a new adjustable-rate mortgage, or get a Fixed-rate mortgage to ensure you don't fall to balloon payments.

Overstep Private Mortgage Insurance: There are mortgage payment options that allow clients to purchase a home with a down payment that's lesser than 20% of the equity. You can even get one that requires no down payment. However, these payment options usually require that you have a Private Mortgage Insurance (PMI) to protect the lenders in case you default on your loan. Once the Mortgage balance on your property is reducing, your home's value is on the increase, and you now own over 20% of your home's equity, you can get a mortgage refinancing that makes it possible for you to cancel your Private Mortgage Insurance.

Cash-out on home equity: As time goes by, your property will mostly be increasing in value, giving you a very good income source. With the increase in the value of your property, you get the chance to cash out some of the equity for your personal use. You can either decide to use the increased value to buy yourself a new car, pay child(ren)'s tuition, pay off credit cards, go on vacation, or to improve the home and further drive up the value. This refinance option is very easy and maybe even tax-deductible. The limit on the second mortgage debt interest deductibility is for interest up to $100,000 of the second mortgage debt, while the first debt has interest payable limit of the interest of a 750 thousand dollars.

All these benefits and more are the reasons why a lot of mortgaged homeowners embark on the refinancing of their property. It offers them the access to get lower rates of loan, make extra income from the increased value of the property, and to get exclusive ownership of their property at a nearer date by taking a loan with a fixed monthly amount and a shorter repayment time.

Cost of Refinancing

There are costs attached to the refinancing of your property, and they include:

Application fee: This is intended by lenders to cover the checking costs of the borrower's credit report and rating, as well as the cost to process the loan request.

Title Insurance and title search: This is the cost of a particular policy. It is usually issued by title insurance companies, and it is meant to serve as an insurance for the policyholder to cover any loss that can arise from possible discrepancies on the property's title.

Attorney review fees: The attorney that conducts the closing, will charge fees incurred on the lender, and the leader will, in turn, charge you for this attorney fees.

Loan origination fee and Points: The leader will charge you an origination fee to cover their mortgage loan preparation and evaluation. At closing, the lender will also impose prepaid financial fees on you. These prepaid financial fees are known as points. They are meant to increase the lender's yield beyond the agreed interest rate on the mortgage. One point is an equivalent of one per cent of the actual loan amount.

These are costs that are associated with the refinancing of your property. You must take all of this into consideration before taking a refinance on your mortgage to be sure if it is a good decision, or a decision better not taken. Although mortgage refinancing might be important for some reasons, it is not for everyone. You must be sure it is a good option for you before going into it.

What you need to Know About Debt Consolidation?

What is Debt Consolidation?

Debt consolidation is the taking out of a new loan to pay off other debts and liabilities that are mostly unsecured. This means that multiple debts get combined into a single and bigger debt that mostly has more favourable terms of payment of such as lower interest rate, lower monthly payment or even a combination of both.

How to Consolidate debts ?

There are different ways you can choose to consolidate your debts from tiny multiple bits into a single lump for payments. Some of these consolidation methods are:

Consolidating all your credit card payments into a single one. It can be new credit card that charges very low, or even zero interest rates for a period, or you can use the balance transfer feature of an existing card, especially if there's a special promotion offering on such a transaction.

Home equity lines of credit (HELOC) or home equity loans can serve as a debt consolidation method. Most times, the interest for these home equity loans is deductible for taxpayers if they itemize their deductions.

You can also get several other options for debt consolidation from the federal government. These options have been employed by a lot of people with payable student loans. You can also explore these federal government consolidation options to see if it will suit you or not.

Types of debt consolidation

Debt consolidation can be divided into two broad parts as below

Secured loans: These type of loans are backed by an asset. To get this loan you will need collateral such as a car, building, and other properties.

Unsecured loans: These loan types are not backed by assets. Unsecured loans are always hard to obtain, and most times, these loans do have very high-interest rates and lower qualifying loan amounts.

Whichever type of loan consolidation you decide to go for, you can be sure that the interest rate you will get on them will still be lower than the rates on credit cards. Also, the rates are usually fixed, and they do not fluctuate throughout the repayment period. Debt consolidation loans, mostly, have between three and five years of repayment.

Consolidation loans do not clear out the original debt, what fey do is to transfer all the debts into a different type of loan to a single lender. So, if you are looking to get debt relief, a debt settlement option will be a better choice for you. You can, however, combine the debt consolidation with the debt settlement option to get better deals.

Note: A debt settlement doesn't make actual loans, neither does it reduce the number of your creditors. What it does, however, is to renegotiate your current debt with your creditor(s) to get an easier loan payment option for you.

Advantages of

Debt Consolidation

Debt consolidation can be divided into two broad parts as below

Secured loans: These type of loans are backed by an asset. To get this loan you will need collateral such as a car, building, and other properties.

Unsecured loans: These loan types are not backed by assets. Unsecured loans are always hard to obtain, and most times, these loans do have very high-interest rates and lower qualifying loan amounts.

Disadvantages of Debt consolidation

While there are upsides to getting a consolidated debt option, there can also be downsides to it. The potential downsides to debt consolidation include:

Extension of the loan term: Although a debt consolidation will get you a reduction in the amount paid monthly, and the interest rate on your loan, your payment schedule might be stretched by the lender which will mean that in the long run, you will end up paying more. This stretching of the loan term or repayment period by the lender is to ensure they make enough profit even though they a charging a lower interest rate. To forestall this, you need to make enough and quality research before taking a debt consolidation loan. You should call the issuers of your credit card to enquire how long it will take to pay off the debt on your card at the present interest rate. Use such information as a comparison to the length and cost of the debt consolidation, to enable you to make a better-informed decision.

Might hurt your short term credit score: Credit score views the replacement of debts before the original debt has a negative point. Therefore, when you make a debt consolidation, you will have an increased risk factor which will impact your credit score rating quite negatively.

Risk of loss of assets: To get a secured consolidated loan is way easier than getting an unconsolidated one. For this reason, if you need debt consolidation, you will probably have collateral which will mostly be your assets and properties. If you fail to stay faithful to this consolidated loan, in the long run, you might suffer an asset loss when the lender takes possession of your property to cover for the unpaid loan.

Losing special terms on different loan: If your initial loans have special terms or benefits, the moment you consolidate them into a lump sum, all the special terms and special benefits will no more apply. A good example is when you consolidate a student loan into another loan. You will, in this way, lose all the special terms that are attached to the student's loan.

Before taking a consolidated loan, ensure you weigh the pros and the cons to ensure that you are making a favourable decision.