Consider Refinancing Carefully!
If you have come to a point in your finances where you are considering refinancing your home, there are some factors to consider.
A first factor to consider is the lender. The lending institution you borrow from can have a profound impact on the rate, terms, and safety of your refinancing loan.
Another factor is being clear about what you want to refinance. Do you have a number of debts you wish to put together in one monthly payment? Do you want to take advantage of lower interest rates and refinance your present mortgage? Are you in a financial situation where refinancing your home and taking out enough money from the equity could help you pay off your debt and lower your monthly payments? All of these factors influence how much you want to refinance and what you want to do with the money.
Finally, you will need to consider what the new borrowed amount will mean to your overall debt picture.
Check Out The Lender
Make sure the lender you are working with has your best interests in mind. There are some second mortgage companies that make their money refinancing for those who are in tight financial situations. If your credit is not good they may seem like "saviors" to you because they are "willing to give you a chance" for a loan when no one else will, it seems. But at what cost?
Remember, some second mortgage companies make their money by charging you much higher interest rates and excessively high fees for the mortgage and by making sure your house has enough equity to justify the high fees and interest.
The high interest rates are sometimes justified with the logic that if you are on time and current with your payments for a year, the company will lower the rates in a year by refinancing again. But are you sure they'll be there in a year? It is not uncommon for mortgage companies to move frequently; what about renegotiating the loan then!
Also, watch out for balloon rate offers. They start off low and "balloon"out of control over the course of the loan. An interest rate that is over 8% higher than the 5-year Treasury rates is considered too high. Don't be convinced they are a value to you if they are not!
Another area to investigate is fees fees such as loan origination fees, points for getting the loan, and other charges. If your credit is less than perfect, the justification for higher fees and rates is usually your credit record. Regardless, a fee that is 5% higher than the going loan fees rate is too high. You should check what the going area fees are before you commit to a second mortgage or refinancing mortgage.
Don't Be Caught By "Too Good To Be True" Payment Hooks!
A major way some lenders increase their fees, your rates, and their returns, is by convincing you to borrow or refinance more than you need. The hook is that you can pay off all of your other loans or debts and just pay one monthly payment. But what is the payment? Can you afford it? If you can't afford it, you lose your house -- not just your credit card!
It sounds great to pay off all your bills, but be sure that the debt load you are assuming with your second mortgage is in your best interest.
Get An Accurate Home Appraisal
You might be surprised when a lender tells you that the appraisal on your home is much higher than you thought it would be. In order for the lender to provide you with the amount of money you will need to pay the fees and charges and to consolidate all your debt, the equity must be proven to cover it. A lender who is in the market to make sure he or she gets that loan often ensures the appraised value by hiring his or her own appraiser. Amazingly, the appraiser usually finds that there is enough money to cover all the expenses!
A potential borrower from Pennsylvania went through the process and was astonished to find out that his house was worth $60,000 more than he thought. When a second appraiser from another company came in, the potential borrower was even more shocked to find out that the house was not marketable at the first lender's appraisal price. The independent appraiser set the market value at $70,000 below what the first lender's appraiser reported!
Luckily, the potential borrower, stopped all negotiations. Had they gone through, the borrower would have had a mortgage payment almost double what he had; an interest payment 5% higher than he had; and a new mortgage that was double his original mortgage!
"Borrower beware" is an appropriate motto in a second mortgage or mortgage refinancing situation. Look at all your options. Consider tightening your belt, re-evaluating your budget, and other cost-cutting methods. If you think taking out a second mortgage, refinancing, or consolidating debt might be your answer, talk to your credit union. They are not in business to pay dividend or profits to stockholders; your credit union is there to help you make the best financial choices for you.
Source: Marketing Partners