Pros And Cons Of Refinancing Loans
Refinancing a loan is simply the
process of paying off your current loan with a new loan plan, which has
a lower interest rate.
How can you negotiate to get
the best borrowing rate? First, it starts with a strong credit score. You
can achieve this by paying your bills on time, cutting back on borrowing
and maintaining a low loan balance by as much as 30% of your limit.
Moreover, by using the equity
of your home in refinancing the existing loan, you gain two significant
advantages. One, because you made your home the collateral, you will be
able to secure a bigger loan, and second, your interest fees are tax deductible.
Which of the two types of refinancing
should you consider? A home equity line of credit is a form of revolving
credit, wherein your credit limits are the maximum amount you are entitled
to borrow at any one time.
A second mortgage closed-end
loan, on the other hand is a loan you where you receive all the funds once
the loan contract has been signed. You repay the loan defined by a set
amount over a fixed period of time.
You can make a better decision
on which type of credit to choose by first gathering all the information
you have available to you: theterms and conditions of the home equity credit
line- derived from the annual percentage rate (APR), and the costs associated
for securing the loan and prepayment penalty, if there is one. Then compare
this data with the second mortgage APR, including any other charges presented
in the financial papers.
The fees outlined below are
some of the most common charges:
Loan Application Fee
This fee is required for the
initial processing of your loan request and for checking your financial
and credit history, the house s equity, and any other information that
the lending institution finds valuable. In addition, if you are not borrowing
from your original lender, you will have to submit documents concerning
your present mortgage. Some of these items are common documents to submit:
information about your current lender, outstanding mortgage balance, amount
of your monthly payment, status of your property tax and any insurance
payments.
Loan Origination Fees and Points
This fee is paid to the lender
for evaluating and preparing your mortgage loan. A point refers to the
prepaid finance charges imposed by the lender at closing to increase the
lender's yield beyond the stated interest rate on the mortgage note.
Escrowed Funds
funds set aside to for payment
of taxes or insurance that is due.
Prepayment Penalty
This is the practice of a
lending institution charging the borrower for an early pay off. Always
check your contract to see if the clause exists.
Title Search and Insurance
This is meant to ensure you
are receiving a marketable title . You may get a price break by opting
to buy a combined lender/owner policy or "reissue" policy.
Finally, consider refinancing
your current mortgage if the following seems applicable to you:
Are the savings to be generated
from refinancing the loan significant? If your mortgage s current interest
rate is at least 2 percentage points higher than the prevailing market
rate, then you should avail of a refinancing loan. For this is the acceptable
safety margin, in balancing the costs of refinancing your mortgage against
the savings.
What is considered an acceptable
length of time to live in your house before you can realize significant
savings? Some financial experts have determined three to five years. It
doesn t make much sense to realize 2 years into your home occupancy, and
you will find a harder time finding a lender who will work with you.
Remember, the safe bet to
consider before you opt to refinance is to do your financial research.
A little due diligence goes a long way to big savings.
Ben Anton lives in Portland,
OR. Ben works for a web design and marketing company named Labworks
Design.Com. Labworks specializes in all aspects of online marketing,
branding and professional web design. Visit his site here Mortgage
Lending Site
Second
Mortgages
Second Mortgage Resources:
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Ameriquest
Mortgage - Second Mortgages - You can use a refinance loan or equity
loan to pay off some of those higher interest credit cards with a lower
interest on the refinance home loan or use the equity as a business
loan.
Loans
for Women- Finding
a loan is not as hard as you think and just because you may have poor credit,
all is not lost!
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