Mortgage and Refinancing Need-to-Knows
While the mortgage company is screaming spend, the consumer is screaming save. When considering refinancing your current mortgage or taking out a 2ND mortgage for your home there is several things to keep in mind. You have to know what your options in obtaining a mortgage are. The most common things that lenders will give out a mortgage for, are refinancing, bill consolidation, home improvement, taking cash out, new home purchase, or an equity line of credit.
Refinancing could be used to lower your interest rate on your first mortgage which could be beneficial in lowering your monthly payment on your mortgage, and also lowering the amount of money you will have to pay back over the 15 or 30 year term. Another reason for refinancing is, if you currently have a first and second mortgage, it can also be used to consolidate the 2 mortgages into one mortgage. The benefit of doing this is you will only have to make one mortgage payment each month, which will lower your monthly payment. Also if you have a second mortgage the interest rate is usually pretty high on the second mortgage, so by consolidating the 2 mortgages it will be beneficial on saving money in terms of paying back that money you owe. When refinancing and you only have one mortgage you also have to ask your self and do the math to see if it's really worth for you to refinance. If you have been paying down on your mortgage, and now you are refinancing again, it means you have to start a new 30 year term of paying on a mortgage. If you have already paid off your mortgage for 7 or 8 years, it would be like throwing the last 7 or 8 years down the drain and starting all over again, just to make your monthly payment lower. Downsides can also include closing costs. If you have been paying on your mortgage for 2 to 3 years and are considering refinancing, you should add the closing costs of your new mortgage to the total amount that you would be saving with your new mortgage. A lot of times you can find that with your closing costs added to the new mortgage you are just breaking even, and are not saving any money by refinancing because you have to pay closing costs. So you spent all of that valuable time refinancing only to break even at the end or make a few hundred dollar difference. Which in turn didn't benefit you at all, but it benefited the mortgage loan officer by making a fat commission off of you from the closing costs you paid.
When considering taking out a 2nd mortgage to consolidate bills you have to keep in mind if you are prepared to cut of your credit cards for good. A lot of people will get into a $10,000 credit card debt, take out a 2nd mortgage to pay off the credit cards and 6 months down the road be in a $5,000 credit card debt again and building up. So they find them selves in positions where they just added $5,000 worth of debt to their previous $10,000. Self control and knowing if you are prepared to cut off your credit cards for good, can keep you in the right track, with a predetermined mind set and a plan that you are willing to follow. The plus side of obtaining the 2nd mortgage to paying off credit card debt is you consolidate all of your credit cards into one payment. You make one monthly payment and you are done. You won't be bothered by receiving multiple bills that you have to keep track of every month.
When taking out a 2nd mortgage for home improvement most people are responsible home owners. They understand that adding to the house or improving an existing part of the house adds to the property of the house, and will increase the equity in the home. Most people who take out a 2nd mortgage for home improvement will pay back the loan, and are not typically late on making payments.
Cash Out or Equity Line of Credit
Requesting cash out from a 2nd mortgage or equity line of credit is usually for people who can afford to take out the cash and have fun with it. These types of borrowers are usually pretty well established or can usually feel pretty confident about being able to obtain a large amount of money to have in hand. Cash out borrowers are confident money movers, that usually can back up what they spend with a money move that can pay that back. A lot of people also keep an Equity Line of Credit open in case of an emergency. Amongst the elderly a lot of people need emergency money for medicine and doctor visits, and having an Equity Line of Credit open helps them with their need.
New Home Purchase
Purchasing a new home can be easy for some and difficult for others. A lot of people are confident in their way of making money. But they run into a barrier. To obtain a loan you need to have 2 years of working experience with the same company. You haven't been at the same company for the last 2 years, your chance of getting approved are very slim. Keeping in mind to save up for a down payment is a must. You also should check with the State that you live in and find out if they have any 1st time home buyer programs. The 1st time home buyer program requires you to go to a few classes that educate you on purchasing a home. In return for going to the classes you can get up $2,000 or even more toward your down payment on the home you purchase. They also have certain criteria you have to follow, such as you have to live in the home for 5 years before you sell it. Though checking with your state or asking your loan officer who should be knowledgeable on the programs is a good idea. For veteran new home buyers you have to evaluate your purchasing decision. How long was it since your last home purchase? How much have you paid down on your current home? You do not want to sell your house if you have been living in it for only 3-5 years. It would mean all of the monthly payments you have made toward your home, you have been paying down the interest. If you sell it chances are you will not make any money off it, and it would be comparable to as if you were renting the entire time. If you are in it to make money or build up equity moving to a new home every 3 to 5 years is not really the wise thing to do. Do the math and know exactly how much you are making and if it is worth your time to purchase a new home.
Written by: Goranco Petrovski / Boss Money