Things happen in life
that can derail the best of intentions. No-one gets a home loan with
the intention of defaulting. However, an accident, illness or death can
completely disrupt your life. You could lose your job, have to take a
pay cut, or find yourself responsible for unexpected expenses. Then
your mortgage payment may seem completely impossible to keep up with.
Fortunately, refinancing could be the solution to at least part of your
financial woes.Of
course, the main goal of refinancing is to better your overall
situation. This makes it important for you to understand exactly what
your options are and what is being offered. An attorney can help you
balance the pros and cons and decide if a refinance makes sense, and
what terms need to be agreed on to make the move a positive one for you.Refinancing
a home loan can incur charges upfront or the loan may be billed as a
'free refinance' by the lender. Of course, nothing is 'free'. The 'no
upfront' refinancing offers have all the fees and charges either rolled
into the loan or represented by an extra half of a percentage point or
so on your interest rate - which can add up over the life of the loan.
Many of the charges a lender will list are inflated and unnecessary -
notary charges, for example (most lenders have a notary on staff) or
copies, faxes and other document related fees. Often the lender can be
convinced to waive these on request.
You
may choose to refinance your home loan to get a better interest rate,
particularly if you originally financed with a fixed high rate or an
adjustable rate that has now climbed out of control. Lowering the
interest rate can reduce your monthly payments, but if you are paying
fees to refinance you should take a hard look at how long it will take
to recoup the money you lay out for the refinance. You may also wish to
extend the life of your loan to spread the balance over a longer period
and make your monthly payments smaller.
If you need to improve
your home you may choose to refinance in order to tap into the equity
rather than take out a separate home equity loan. You may also decide
to use such cash to pay for a large ticket item but be aware - this
means that you are financing the new item over the life of your home
loan. Also be wary of refinancing your home just to pay off credit card
debt; unless you then stop using the cards, you will soon find yourself
deeper in debt than before.
The
top reasons for refinancing are to get a lower monthly payment amount,
to get a better interest rate, and to increase cash flow and relieve
tight finances. In some cases the term of the loan can actually be
shortened - if you are able to make the same payment but the interest
rate goes down, you will be able to pay off your home in less time.
Refinancing
home loans in order to access equity for investment purposes is also an
option if the homeowners believe they can gain a higher return through
investing the equity than they will pay for taking it out during a
refinancing. An attorney can help you decide if refinancing is a good
idea, and (if so) which type of refinance arrangement will work best
for your specific situation.
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