When you need the extra money
If you are cash-strapped and your loan payments seem
to be pushing you to a corner, then you might want to
consider home refinance. This scheme involves
consolidating all your debts into one, in the process
getting a more reasonable interest rate and reducing
your monthly payments.
It may be that you have originally taken out a
fixed-interest plan and want to adjust to an
adjustable-rate home refinance package. This is usually
done if interests rates have been lowered since you
first got your loan and is predicted to go even lower
for the coming years.
On the other hand, you may have opted for an
adjustable rate mortgage (ARM) initially, but because
your status had somewhat stabilized and you can now
afford to stay at the home you bought for a longer
period, a fixed-rate mortgage is more appealing.
The home refinance option is also appropriate for
when you want to lengthen the duration of your paying
period. True, this increases the total payments, but it
helps a lot to ease the monthly fees you are struggling
with, if they have become unmanageable.
Changing your package from a 15-year home refinance
plan to one that lasts 30 years will help you cope with
your monthly bills. There are also variations to the
30-year plan, such as the 30-year fixed, interest only
scheme. Here, you are only obligated to pay the interest
and pay the principal in your own sweet time.
The catch here is that most plans falling under this
home finance scheme involve a recalculation of rates on
the 10th year. If the lender finds on recalculation that
you haven't paid much towards your principal, then you
could be in a lot of trouble when, after recalculation,
your monthly payments would suddenly balloon.
This is the reason why many borrowers default on the
11th year. To prevent this, you should still practice
some discipline in paying towards the principal during
the times when your finances have eased somewhat and not
get accustomed to paying only the interest at all
times.
You'll also come across plans that even give you
extra money which you can use however you want. It can
pay for a child's college education or the purchase of a
new car, for instance.
When you have extra money
Conversely, if you have the cash to spare you can
also get a home refinance plan. If you have a 30-year Mortgage
refinance, for example, you are free to
shorten the duration so you won't be paying as much when
everything is totaled in the end.
A home refinance package is also a good option even
if you aren't strapped for cash because doing so will
enable you to avail of better interest rates, if you
shift from an ARM to a fixed-rate home refinance plan or
vice-versa.
Equal Housing
Opportunity (c)
Copyright 2008 #1 American Financial
(1AmericanFinancial.com)