What You Need to Refinance Education?

Monday, September 30, 2013

Debt Consolidation

The primary reason for homeowners to go through the process of refinance is that they have high interest rates such as credit card debts or a high mortgage rate. A consolidation loan enables the homeowner to use the existing equity in their home as collateral to secure a low interest loan which is large enough to repay the existing balance on the home as well as a number of other debts such as credit card debt, car loans, student loans or any other debts the homeowner may have.

When someone borrowed money initially on a low documentation loan (typically for self employed applicant with no tax return )application, the chance is they are on a higher interest rate and as soon as they can satisfy the lender of switching to full documentation loan (providing full tax return ), they can reduce their mortgage payment significantly.

Another popular reason for re-financing is to use the existing equity in the home. Homeowners who have a significant amount of equity in their home may find they are able to cash out some of this equity for a valid reason. This may include making improvements to the home, starting a business, vacation, purchasing a car or another property.

The homeowner are limited in how they can use the equity in their home and may re-finance a home equity line of credit which can be used for any legitimate purpose. A home equity line of credit is different from a term loan because the funds are not disbursed all at once. Rather the funds are made available to withdraw these funds at anytime during the loan period.

Homeowners need to be aware that the equity line of credit has a higher interest rate as it is a high risk to lender.

Additionally, debt consolidation can also simplify the process of paying monthly bills. It does not necessary reduce the overall repayments but it will reduce the number of the bills to pay and generally it is easier to track family budget and finance.

Tips on refinancing home loan:

The balance of existing loan plus all the debts for consolidation should be less than 80% of the value of the collateral security otherwise the lender mortgage insurance fee will be added to the loan, this free is to protect lender in case borrower fails to make repayments, This fee could defeat the purpose of re-finance and debt consolidation.