People refinance their mortgage for many different reasons, but they all have one thing in common – to save money! Perhaps interest rates have dropped since your took out your mortgage, or you need to consolidate some higher interest debt. Refinancing can get your monthly payments back under control while actually paying down your debt – not just the interest.
What is Mortgage Refinancing?
This is basically a means of taking out a new home mortgage, and repaying the existing mortgage. This is financially smart thing to do if you can get lower interest rates on the new loan, which justifies such refinancing and any penalties involves. Refinancing also makes sense when looking a major home renovations such as a new kitchen installation, bathroom refurbishing or finishing a basement.
When you go in for mortgage refinancing at lower interest rates, you get the benefit of having to make lower monthly payments, if the period of the loan remains the same. You can also keep up the same payments and reduce the period of the loan, so that the home can become yours in a shorter time. It is only when interest rates have dropped that it becomes advantageous, and the right time to examine whether it is the right option for you.
You can also look at refinancing a mortgage, if you feel you are in a position to pay higher monthly amounts, because of an improved financial situation. It can get you a substantial reduction in interest rates, if you repay the old loan, and take a new one, for a shorter period. This will probably increase the monthly payments you have to make, but as you are now in a position to do so, the reduced interest rate can lead to a huge saving in the total amount you pay for your home in the long run.
Credit scores play a part in the interest rates that will be available to you when you look for debt consolidation through mortgage refinancing. When you have active credit cards, this can have a negative effect on credit scores. So reduce the number of cards that you have by making a request to credit card companies to close your account. Credit card reports will mention this request as a fact on their statements, and this will help to increase your credit score. When you have a poor credit rating, refinancing is still an alternative that you can consider, but it will result in higher interest rates, and may make the mortgage refinancing less beneficial.
Refinancing is a good solution if you are intending to stay on in the same home for a much longer period. It will also depend on the value of your property, your income and the status of your present loan. The old loan has to be paid off in full, and this may involve certain penalties and fees. The new financing will also involve some fees, and all these amounts need to be taken in to consideration before you decide on whether the new financing is a viable proposition. You will be required to go through the same process you went through for your original loan, but by this time, you will have some equity in your property, and hopefully a better income and an improved credit score. You will also be required to give an appraisal report on the property, your title to it and other financial statements.
You can also go in for mortgage refinancing if you want to change from an adjustable mortgage rate to a fixed one, because you see some advantage to yourself with this change. Whatever the reason you are looking at the alternative of refinancing your mortgage, make a proper evaluation of all financial angles, and make a judgment as to whether change will make a substantial difference to your finances. If the value of a property has reduced, refinancing may not be the right solution.
Debts are an obligation from which we cannot turn away. They are a situation that you have got into, and it is up to you to find out what you can do to honor your debts. When you are talking of debt consolidation what you are essentially doing is combining all your debts into one. Debts are secured, if they are against property, or other tangible assets that have a continuing value. Debts like credit card and other form of personal loans may be unsecured and will always have higher interest rates. It is possible to go in for a debt consolidation mortgage that combines all the debts you have in your name. In this case, however, your property will become vulnerable to be seized in the case of any default on repaying the required installments of this new mortgage. It is not a cure for credit, but can give you credit relief. It can help, however, to lower interest rates on some of your various debts and this can be a positive.
To understand debt consolidation you must be aware of your present amount of debt, their nature and their age. Be aware of your credit score, and whether your creditors have handed over collection of the debt to collection agencies. As a homeowner, there is not much emphasis laid on credit scores, but a good one, will always allow you to ask for better rates during any negotiation for debt consolidation. You can get such debt consolidation even with poor credit scores, because of the fact that you have a home, but interest rates may be that much higher.
Debt consolidation depends on the circumstances under which the homeowner is. It requires the formation of a proper plan for the debt management, which has to be adhered to. It has to be based on a careful study of the income and expenditure, and must never lead to a stretching of the budget. People who go in for debt consolidation do feel an easing of the financial burden, but require to maintain discipline and not allow this easing, to lead them in to further debt. The new loan will again be for fairly long periods from ten to thirty years and requires that you live carefully and within your income, so that you are always able to meet the commitment that you have made after your mortgage refinancing and debt consolidation.
A good debt consolidation for a homeowner must fit into their existing financial situation and be one that must always be stuck to. These are decisions that can affect your life for a long period of time, and must be taken after proper planning and a realistic consideration of your financial situation and capabilities.
Should you start thinking about a consumer proposal or second mortgage?
If you are currently stressed with higher interest credit card financial obligation or balancing numerous loan payments each and every month you may well be looking for a way to combine your debt into your home mortgage. However, is this the best option?
A consumer proposal in Canada is also a means to bundle a number of unsecured financial debts into one reduced regular monthly payment, and will generally enable you to get out of debt far sooner.
Home Equity Mortgage verses Debt Consolidation Loan
Home owners can easily consolidate credit card debts as well as lines of credit and different personal financial products into their mortgage. This can be done by either by refinancing the first mortgage on the property, or by taking out a second mortgage. Debt consolidation loans, secured by the equity in your home, will normally have a much lower interest rate than the debts you are consolidating into your mortgage.
Although a reduced interest rate should mean a lowered monthly payment, whether or not you save money will depend on the time-frame of your new loan. It is extremely important to recognize that interest is still being incurred on your new financing. The longer your mortgage or loan amortization, the more interest you will pay.
A debt consolidation mortgage does not decrease your overall personal debt. If you consolidated $50,000 in credit card debt, you end up with an extra $50,000 home-equity loan or mortgage. Your total debt has not decreased, however your monthly payments will be reduced increasing your cash-flow.
When Refinancing is Not a Good Option
A issue with a property secured financial obligation is the possibility that you may possibly lose your residence. If your financial obligations are much more than you can realistically afford to payback, even when combined into your mortgage, debt consolidation may not be the ideal option. In the event you are not able to make your mortgage repayments, your mortgage loan provider will eventually bring legal action against you to recover their money. This will surely end up by a foreclosure action on your home.
A second or refinanced first mortgage is not be an ideal alternative if it truly does not manage all of your personal debt issues. When you have liabilities that are unable to be incorporated into your home mortgage, and you proceed to use your credit cards and pile up more debt, you may discover yourself owing a lot more compared to what you started with.
Consumer Proposals are Not A Loan
It is not a new loan, and as such interest stops saving you a considerable amount of money. A consumer proposal is an ideal option if the overall amount of all of your own unsecured debt surpasses the equity in your house. Just how much a person will likely have to pay depends upon the equity in their home, as well as their income. It is definitely a practical solution for consolidating higher interest unsecured financial debt.
Paying off a Consumer Proposal With a Mortgage
A consumer proposal can be paid off early with a mortgage, however, until your consumer proposal is paid in full, it is challenging to find a lender to offer you additional funds. The reason for this is, they are concerned that if you default on on your proposal, all of your past financial obligations come back. You may be in a position to be considered for mortgage financing while in a consumer proposal if you have adequate equity in your residence. Also having the necessary income to allow you to make the increased mortgage payments always helps, combined with an excellent mortgage payment history.
Lenders may very well want a co-signor, and you will most likely pay a higher interest rate. You should really ask your consumer proposal administrator to recommend you to a mortgage professional knowledgeable with financing in consumer proposal situations to take advantage of your options.