Tag Archives: refinancing
Interest Only Loan Refinance
Refinancing of interest only loans simply means swapping one loan for another. It is an effective way to decrease the debt on existing loans. This is especially beneficial if the current interest rates are lower than the interest rates you are presently paying on the loan. Refinancing would enable you to convert your high interest debt into a low interest debt, as the amount of monthly payment would decrease. The extra money saved can be reinvested in something more lucrative like real estate or shares, or to pay off high-interest debts like credit cards. Refinancing is also done for converting an adjustable rate mortgage into a fixed rate mortgage. Refinancing has become so common in recent years that almost three quarters of new mortgages were refinanced loans in 2003.
Refinancing of interest only loans is very attractive, especially when the time comes for the loan to get amortized. That means the loan will have to be repaid at the current interest rate, along with the principle. Most people seek to refinance their interest only loan in order to buy more time, i.e. to delay the repayment of the principle further. However, this may also increase the risk on the loan, since the interest rates may go up further, the price of the house may come down or the economy may slump in the future.
Refinancing of interest only loans is ideal for people who are expecting huge capital gains in the next few years or are planning to sell their house by the time the interest-only period is over. This is a good alternative as long as the economy is good, the interest rates are steady and the prices of houses are increasing. Interest only refinancing is recommended for people who have irregular incomes like commissions or bonuses or those who are expecting a hike in their income in the coming years. The savings accrued from refinancing can also be used for home improvement, which will increase the value of the home in the future.
A few questions to be considered while refinancing are: how long do you expect to stay in the house? How much equity do you have in the house? Will you have to pay points for getting a low rate from the refinance? What would be the closing costs? Will the lower payments from the refinance enable you to cover the closing costs, points (if any) and the fees reasonably?
There are several lenders who are offering refinance options for interest only loans. The Internet is a good source for getting information about these offers and also to find out more about interest only loan refinance.
Top 5 mistakes when getting home equity
Rates have historically never been better, so nowadays the temptation to borrow against your home equity is very strong. However, many homeowners unknowingly make costly mistakes.
Here are the top 5 mistakes people make when applying for a home equity loan.
Mistake 1 – Not Knowing The Difference between a Home Equity Loan and a Home Equity Line of Credit
A home equity loan is a one-time transaction that allows you to draw out all the funds available.
A home equity line of credit (HELOC) is open; you can choose a small initial advance against the full amount of the line; then reuse the line of credit as often as you want during the period that the line is open. Your monthly payment is based on the outstanding balance.
A general rule of thumb is: use a home equity loan when you need all the money up front; such as cash for home improvements, debt consolidation, or a large one-time purchase.
If you need ongoing access to cash and revolving credit a HELOC may be your best choice.
Mistake 2 – Taking a Home Equity Loan When You Plan on Refinancing Your First Mortgage
Many mortgage companies look at the combined loan amounts (i.e., the sum of the first and second loans) even when you are refinancing only your first loan. If you plan on refinancing your first loan the lender may require you to pay off both your first and second mortgages; or close your home equity line completely.
Check with your mortgage company to see if having a second loan will cause your refinance to be turned down.
Mistake 3 – Not Knowing The Hidden Costs
If you feel you must take out a home equity loan or open a line of credit it is important to know ALL the costs. With any loan secured against your property there can be hefty insurance costs, appraisals and other fees that can cut into your loan amount.
Mistake 4 – Only Applying at Your Current Bank
Many consumers apply for their home equity loan from their home bank. This can be a costly mistake.
As in any other type of loan, be sure to shop around for the best deal. Your current bank may not be able to give you the best interest rate or the best terms.
Think twice before deciding to use your local bank; you may find that there is another lender out there that can offer you a substantially more attractive loan program.
Mistake 5 – Not Checking Your Credit First
As in any type of loan, it is imperative that you get the best rates and terms. However, if you have credit problems it will seriously affect your ability to qualify.
In fact, if your credit is not the greatest you may have no choice but to use alternative lenders specializing in hard to place loans. The solution: Make sure you go with the bank or lender that provides the best rates for your type of credit whether good or bad.
There you have it. Avoid these 5 mistakes and you could save yourself hundreds, if not thousands of dollars when you get a home equity loan.
Strategic Capital Network is a licensed mortgage brokerage specializing in helping credit challenged homeowners qualify for home equity loans.