If you are like most Americans you’ve probably racked up considerable debt trying to keep up with the Smith and Jones families down the street. According to Cardweb.com, the leading online publisher of information pertaining to credit and other payment cards, you are not alone. In 2004, individuals who earned between $75,000 and $100,000 per year, and had at least one credit card, carried an average revolving balance of nearly $8,000. This does not even include other personal debts such as car loans, which can total in the tens of thousands.If credit card debt is keeping you up at night, you’re probably wondering what you can or should do about it. File for bankruptcy? Refinance? If you refinance, is a fixed mortgage rate or an adjustable rate mortgage better? What about a home equity loan? The simplest answer of course is to get a debt consolidation loan.What is a Debt Consolidation Loan?Simply put, a debt consolidation loan lumps all of your debts together and pays them off using a single new loan. The next question of course is how to go about getting a debt consolidation loan. Visit a loan shark? Take out a second mortgage on your home? Apply for an unsecured loan at the bank and hope for the best? For the majority of folks a visit to the local loan shark is not a viable option; but taking out a 2nd mortgage or obtaining an unsecured loan from the bank are both excellent choices.Whether you use a second mortgage or an unsecured loan to pay off credit card debt, often depends on several important factors including whether you actually own a home, what your credit rating is, and what the total dollar amount of the credit card debt is that you owe to various financial institutions. According to one expert we spoke to who used to work in the unsecured loan business but now runs his own mortgage broker business, “The most important consideration is the borrowers credit history.”2nd MortgageA second mortgage is a loan or mortgage that is taken out after a first mortgage. It is similar to a first mortgage in that it uses the equity built up in a home as collateral. Similar to a first mortgage, a second mortgage consists of a fixed dollar amount that is paid out in one lump sum and repaid over a period of time typically 15 or 30 years. A 2nd mortgage may be either a fixed rate or an adjustable rate mortgage.Sometimes called a junior mortgage or junior lien, a 2nd mortgage is subordinate to a 1st or primary mortgage. What this means is that in the case of default, the lender for the first mortgage gets paid before the lender who issued the second mortgage does. As such, a 2nd mortgage is considered to be a higher risk and lenders often charge a higher interest rate; however, this rate is generally lower than an unsecured loan or the interest charged on most credit cards.Second mortgages are tax deductible, a major advantage for most people. The payback period is over a fairly long period of time so monthly payments are lower and the total loan amount is generally larger. “There are some cons to consider when thinking about taking out a second mortgage,” explains Brett Bostwick, owner of Snowbird Mortgage Company. “It takes longer to get approved, there is more paperwork involved, and because it is a mortgage loan, there are closing costs such as appraisals and title searches,” he says.Unsecured LoanAn unsecured loan is a lump sum payout that is repaid at a fixed rate of interest in equal payments over a short period of time, typically 5 years or less. Unlike a second mortgage, collateral is not necessary to secure the loan. Loan amounts are relatively small, usually less than $15,000.Interest rates on unsecured loans, which are sometimes called signature or personal loans, are determined by whether you are considered a good credit risk. In other words, the higher the credit score, the lower the interest rate will be and vice versa. A bad credit score will earn you a higher interest rate, sometimes the same or higher than the credit card interest you are paying. This is compounded by the fact that an unsecured loan is considered a higher risk (no collateral), and lenders may charge interest rates that are often quite high, generally higher than the interest rate on a second mortgage would be, but usually less than that 18%-plus interest credit card debt you are trying to pay off.Unsecured loans have a couple of advantages over second mortgages in that approval process is much quicker and there are no additional costs involved. Because the loan period is shorter and the interest rates are higher, monthly payments are also higher. Nor is the interest is not tax deductible. However, if you default on the loan, it may damage your credit but you won’t lose your home.The Bottom LineIt really depends on your situation. What is best for a co-worker or neighbor might not be the best choice for you. Most experts advise getting a 2nd mortgage if you are paying off a larger amount of bills and you don’t mind paying closing costs or the longer approval process required for a second mortgage. If you need money quickly and only have a small amount of debt to consolidate, it’s probably better to go for the unsecured loan.Of course unless you exercise restraint, change your spending habits, and stop using those credit cards, you will fall right back into credit card debt. With a little hard work and perseverance however, you will remain credit card debt free…and able to keep more of those hard-earned dollars in your pocket instead of handing them over to the bank.
Based on study conducted by the Mortgage Bankers Association of America indicates that every four years Americans take out a refinance loan for their home mortgage. Do You think It’s a need to refinance your home mortgage as well?Before making decision whether refinancing is suitable for you or not, first of all it’s important for you to know how refinancing works. For one, refinancing your home mortgage will not cancel out your debt but it gives you the opportunity to do that and more.Here are 5 good reasons to refinance home mortgageInvest Your MoneyYou’ve come up with an excellent business idea but no one wants to take a risk on your proposal. But if you’re really sure about the profitability of your business plan then why not take the risk yourself? Refinance your home mortgage and use the cash you’ll get from it to start your own business. You may be the sole investor in the business and it may mean shouldering all the risk alone, but when your business starts generating income, it also means getting to solely enjoy the business’s profits.Obtain Lower RatesDesperate times call for desperate measures and this could’ve been the reason why you’ve taken out a loan with outrageous rates in the past. But you don’t need to continue suffering when there’s an option to refinance.Refinancing allows you to get rid of your old loan and replace it with a better one. Your mortgage refinance loan can come with lower rates, allowing you to breathe more easily because you know you can pay on time and maybe set aside a little more for savings.Pay for Your Children’s EducationSure, the government promises to fulfill every child’s right to education but the White House as well as your state and local government can only do so much. If you want your child to have the kind of education he deserves, you’ll need to contribute your own money for his tuition.Education, however, is a costly matter. What you’re earning each month may not be enough, but if you refinance your home mortgage, you’ll have the means to put your child through college. After that, you’ll just have to wait a few years more and then you can reap your rewards when your child returns the favor by paying off the loan. The table will turn and this time, your child will be the one supporting you!Prepare for EmergenciesThere’s no way to know when emergencies can take place but things tend to get better when you’re prepared for them. Financially speaking, you can prepare for such emergencies by taking out a refinance mortgage. Whatever happens, having extra cash from refinancing can at least give you a semblance of comfort!Pay Off Your DebtsRevolving debts are the worst and credit cards are the classic source for them. Refinancing your home mortgage to pay off such debts will be a smart decision on your part. These debts charge exorbitant interest rates but do not offer anything in return as they’re not investments able to earn profit. They only serve to eat more and more of your income especially when you can’t pay on time.Worse, having too many of such debts can only spell bad things for your credit rating. If you want to free yourself from debts, credit cards should be the first thing to go. Take the first step to financial freedom by refinancing your home mortgage.
With the aim of lessening their worrying dilemma on imminent foreclosures of their home loans and thus losing their home to bank, quite a few people of late have turned to home mortgage refinancing loans. This is in fact better than losing your home to the bank which financed your home initially. The vital thing in achieving your ambition is to get linked details with reference to refinance mortgage loans, terms and conditions and compare today’s refinance rates presented by top financial institutions as well as banks.You can unearth all these facts by surfing internet, reading financial newspaper or magazines and using several other medium.Nevertheless ahead of you choose refinancing home mortgage loans, initially mull over why you are keen on a mortgage refinancing plan. Are you considering reducing your monthly payments by lengthening the loan term? Or did you get a striking lower interest rates offer than you are paying now? Did you accrued debts because of economic recession and were rendered unemployed and are at present ardent on pulling out some amount from the home equity that you’ve built-up over the years to pay off all your debts as well as other credit card dues?You have to answer all the aforementioned basic questions that are significant to ascertain the type of refinancing home mortgage loans plan that is compatible to your requirements. A mortgage is identical to an investment plan where your investment is your home equity and refers to the value of its appreciation and the amount of principle needed in paying off your mortgage. Pertaining to this, the residual money goes towards payment of interest for the cash that you borrowed from the lender. Imagining you chose a 30-year fixed term mortgage home loan 15 years back this indicates that you have invested the money corresponding to your principle in addition to interest.Reliant on your monetary condition, you have an opportunity to put into action a refinancing home mortgage loans plan to refinance your home with a quick-fix loan that will let you to repay your home loan in advance hence saving thousands of dollars in interest only. A further significant thing to consider is that you benefit from the appreciation of your home valuations later than several years depending upon the trend of the market. Imagine the interest rates at this time are in fact lower than when you bought your home, you can next request a further 30-year fixed term refinancing home mortgage loans plan. Effectively, at this time you would be borrowing a less significant amount of loan at a lesser rate of interest and with lesser monthly installments.Moreover, there are several websites on the internet, which offer information on refinance mortgage plans presented by top financial institutes and banks. They have a comprehensive record of today’s mortgage interest rates presented by these institutes and banks. In addition, these websites also present free online mortgage calculator in which you can enter your figures and see the amount you will gain or lose by selecting a specific refinance home mortgage plan.
There are at the least four reasons to refinance a home loan. One probably could consider the first one to secure a reduced mortgage rate.The normal rate of interest on an conventional mortgage at the beginning of 2010 was 5.97-percent, according to the Bureau of Economic Analysis. It is even lower nowadays as 2010 is nearing the fourth quarter.Reduce Your Home Loan Rate
The number one purpose to refi is to secure a lower mortgage rate. Despite falling rates, lots of people have not refinanced. Many owners want to refinance but cannot as a result of they have little or no home appreciation due to falling house values.Refinancing your own home typically includes many advantages. You possibly can benefit from decrease mortgage charges, pay much less in your total mortgage and plunk more cash back into your pocket every month. Listed below are five superior explanation why you need to refinance right now.Decrease Monthly Expenses
Until you plan on transferring to a new home someday soon, refinancing your mortgage loan can decrease your month-to-month payments. Chances are great that you’re in a better monetary situation now than you had purchased the house except you may have gotten more recent financial problems similar to the many homeowners who are behind on their mortgage.You probably have been able to pay your payments on time and haven’t had any major monetary disaster, you’ll be able to often get a greater fee which leads to smaller payments. You’ll pay some upfront prices for the interest rate reduction, but you’ll quickly get better these prices if you happen to stay within the house for just a few additional years.Switching Between Mortgage Types
If you happen to have been dealt with an adjustable-rate mortgage or some other type of variable rate mortgage over a permanent-rate, refinancing your mortgage will give you the chance to change.Mortgages that are adjustable-rates are always unsure because you never know how much you’ll pay from month to month as a result of the rate of interest is always varying. Other forms of mortgages are additionally lower and very attractive. When you have anything but a variable-rate mortgage, think about changing to a fixed-rate when you work out your refinance.Eliminate Your PMI
Private Mortgage Insurance, or sometimes called PMI, lets you purchase a house if you’re unable to place at least twenty percent down. This insurance helps make sure the lender will get their money for those who fail to pay.However, whenever you refinance, you may eliminate this added payment as you pay back your mortgage. Confirm with your lender to look into a case where you are eligible to remove PMI before you discontinue paying on it. There you have it just four reasons why a refinance may help you in cash flow by eliminating PMI, switching from a variable to a fixed-rate,
The U.S. Federal Reserve has raised interest rates five times since June, with more hikes being predicted. Short-term interest rates raised 15 times over the past two years and rates on home equity lines of credit are at a five-year high. As a result, the growth of home equity loans is slowing, especially home equity lines of credit (HELOCs) and adjustable rate mortgages (ARMs) due to their variable interest rates that adjust based on a standardized index (e.g., the Eleventh District Cost of Funds Index, United States One-Year Treasury Bill, or Wall Street Prime Index).Now, credit line borrowers are paying off their home equity lines in increasing numbers by refinancing into fixed rate second mortgages. For example, at Wells Fargo, the number of borrowers prepaying their credit lines has climbed 50% this year. At Wachovia Corp., 40% of customers are choosing fixed-rate home equity loans, compared with 30% last year.To attract new borrowers and keep current credit line customers from paying off their loans, lenders are “sweetening the pot.” According to RealEstateJournal, U.S. Bank, a unit of U.S. Bancorp, this week introduced a home-equity loan with a rate of 5.99% that’s fixed for 20 years; previous rates in most markets were 6.99% or higher. J.P. Morgan Chase & Co. has cut home equity rates for some borrowers on its lines of credit to 0.76% below the prevailing prime rate of 6.75%. Other banks are also offering enticements to keep customers from paying off their home equity lines of credit.Adjustable mortgage rate borrowers are scrambling to refinance into fixed rate mortgages (FRMs) to lock into fixed interest rates before the next rate hike. Holden Lewis, senior reporter with Bankrate says, “Looking at mortgage rates, the 13-week average is higher than the 52-week average; the four-week average is higher than the 13-week average, and this week’s rate is higher than the four-week average. The upward momentum is undeniable.” And, according to Moody’s Economy.com, more than $2 trillion of adjustable-rate mortgages come up for interest-rate resets in 2006 and 2007.
If you have an adjustable rate mortgage, it is better to go for refinancing as an option. The benefits of refinancing an ARM are:1. More uniform payments: One of the flipsides of an ARM is that there is always a rise of your monthly mortgage payments rising. In this case, you may want to look for refinancing to a fixed rate mortgage to shield yourself from future rise in mortgage rates. You can also protect yourself by refinancing to another ARM with better cap limits to the extent of rise in your mortgage rate.2. Take advantage of a better credit score: If your credit score is improved after taking mortgage, you will be able to refinance to an ARM with a lower margin and save on the money. The margin is actually the amount that is added to a particular index to deduce the interest that is charged on your mortgage. This margin is somewhat based on the credit score that you have at the time, when you applied for the mortgage. A lower credit score can actually lower the margin and help you benefit from lower interest payments on the mortgage3. Debt consolidation: If you have a better portion of the mortgage payment already paid off, you can also choose refinancing to a new mortgage with a higher principal amount This can actually be good because you get the extra amount by way of cash, which can be used for debt consolidation or to make any significant purchases.4. Quicker home ownership; If you refinance to a shorter term like say to 15 year term from 30 year term, you will be able to pay off mortgage much faster and save lots of money in interest payments.