4 Reasons You May Want To Refinance Your Mortgage Loan

Deciding to refinance your mortgage loan depends on different reasons for different people. It really is going to depend on your situation and knowing the reasons why you want to refinance. Let's look at 3 common reasons people refinance their current mortgage.

1. If you are paying too much every month for your mortgage it may be time to refinance. A drop in interest rates could mean big savings for you. If you have made your payments on time and have a good overall credit score refinancing at a lower mortgage rate could lower your monthly payment and help you have more money at the end of the month,

2. If you have built up some equity in your home and you need to access some cash refinancing your mortgage could be just the place to get it. If property values have increased since you took out your mortgage loan you are sitting on a pile of money that could come in handy.

Banks do not really care about what you want the money for. Common reasons to pull out some cash on the equity of your home could include paying for your daughters wedding, doing a home improvement, taking a vacation, or paying for college tuition.

All the bank wants to see is that you have a way to repay the loan and they are secured by the equity in your home when they do the loan.

3. If you have an adjustable rate mortgage that has crept up and is getting ready to roll into a high fixed rate this may be another reason to refinance. People take out an ARM to get a lower rate and to be able to qualify for a little bit more expensive home.

After a number of years the ARM will be ready to settle into a fixed rate loan. Depending on the fixed rate you may be able to do better by refinancing. Your mortgage loan professional can help you decide the best route for you to go if this is the case for you.

4. One other reason that people look at refinancing is to shorten the length of the loan. That is commonly done when you want to go from a 30-year loan to a 15-year loan.

If your income has gone up and you determine you want to stay in the home you have for many years to come then this makes sense. Paying off your loan early gives you the peace of mind of knowing you own your home.

These are 4 good reasons that you may want to refinance your mortgage loan. The important thing is to know "why" you want to do it and make sure it is best for your situation.

Using Your Home Equity for Home Improvement

Home Equity Loan

You want to add a deck to your home to enjoy your evenings outside with your family and friends. You have cash sitting in your bank or you have a few credit cards that you can tap into to finance your home improvement. What is the best option? Should you get a Home Equity Line of Credit? Making the right decision is based on knowing various pros and cons of different ways to finance your project and your current situation. Even if you have cash sitting in the bank, it may not always be the best option.

If you have cash at hand, it should be earning at least 5% in a savings account. If you are not earning 5% from your bank, dump them and go to a bank that will give you at least 5% on your money. Search the Internet and you will be able to find a few online savings accounts, offered by well known banks like Citibank, Emigrant bank or HSBC that will give you a 5% return on your deposit.

If your credit is good and the project is small, search for a credit card that will give you 0% interest rate for a year. Apply online and get approved instantly. Within a couple of weeks, you will get your card and you will be able to use it for your home improvement project. You can use the same technique for store credit cards, Master Card or Visa. When you get a loan on 0% interest rate, make sure that you don't miss a payment. To avoid missing a payment, use online payments offered by many banks for free or the online payment option of the credit card company. Using an online payment, setup a scheduled payment plan for the monthly payment to the credit card. If you miss a payment, your credit card company will withdraw your 0% rate and may even impose a high rate on the remaining balance. So it is very important that you don't miss a single payment. Be aware that when you use a credit card to finance your home improvement project, you cannot claim any tax deductions on the interest you pay. Hence, it is extremely important that you retain your 0% interest rate till you pay off the loan.

If your home improvement project is a large one and you want to do it in stages, HELOC, or Home Equity Line of Credit, is a good option. Search the Internet to get the best rate. Find a bank that not only offers the best rate but also waives the finance charges. When you take a HELOC loan, you are essentially putting your home as collateral and the interest you pay may be tax deducible.

Refinancing your home is a good choice if you have a large equity in your home or you want to reduce your existing mortgage rate. Also, if your home improvement project will add substantial equity to you home, refinancing is an attractive option. You will also get tax benefits on the interest you pay.

Obtaining a second mortgage to finance your home improvement project makes sense if you get a low fixed interest rate and the interest rate on your first mortgage is even lower than the second mortgage. A second mortgage involves less paper works than a full refinancing.

Are you thinking about getting your money from your company's 401 (K) plan? Forget it. Don't use your 401 (K) plan money for your home improvement. A 401 (K) plan is for your retirement not for your home improvement projects. If you are not old enough (59.5 years or more) to take a distribution, you will have to pay tax and 10% penalty for any withdrawal from your 401 (K) plan. Borrowing against your 401 (K) savings is also not a wise choice because 1) you have to pay it back with the above average interest rate 2) money borrowed from your 401 (K) plan will not earn anything in your 401 (K) plan till you pay it back completely. On top of that, if you are laid off you will be hit with the tax and a 10% penalty unless you pay the remaining balance in one lump sum.

Don't make a decision on haste. Weigh the pros and cons of various methods discussed above and your current situation. Find the best way to finance your home improvement project using other people's money and without hitting your pocket book hard.

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3 Ways to Build Equity in Any Real Estate Market

Home Equity Loans

Market fluctuations, demographic location, and owner upkeep all play an essential role in the value of your home. Your equity is the difference of what you owe on your mortgage(s) and the current market value of your property.

In many cases equity takes time to build up any substantial amount. Of course when the market turns on a flat or downward spiral you can lose a substantial amount of equity if you are not prepared for it.

The average appreciation is 7% per year for a national average and in some cases we have seen up to 20% or more. Although these are rare occurrences they make the real estate market the most lucrative marketplace in the country.

One of the most common misconceptions about real estate is leverage. When you have exceeded the 80% Loan to Value limit on your mortgage you are eating away at your own personal wealth. Your interest rates are higher and your overall cash flow is decreased substantially.

So how can you build and protect your equity in any type of situation while keeping your shirt on your back? There are several options.

The first and most common way to build equity is the old fashioned fixed rate loan with terms between 10 - 50 years. Of course the longer the term the more prolonged the pain of a mortgage may be.

If we were to look at a number line and we placed from left to right the terms (length of time for the fixed period) of the fixed rate mortgage you would see starting at the left 6 months to 50 years. All of these would be increasing 6 months, 1 year, 2 years and so on...

All of these numbers would be on the bottom of this rule. Secondly on top of the number line you would look at interest rates starting from the left let's look at the 6 months term = 5.5%, the 1 year term = 5.87% and the rates increase upward the longer you secure your fixed rate period.

The second option is using an equity builder program such as the biweekly payment plans or the extra principle payment once a month to your mortgage lender. Problems here are the extra amounts of cash going to the lender and the extra steps in paying your biweekly payments.

The biweekly payment plan works because interest is calculated on a daily principle balance if you pay 1/2 of your mortgage on the 1st of the month and 1/2 on the 15th of the month you essentially cheat the system because you are breaking the interest accrual down from every 30 days to every 15 days. Hopefully your lender is quick with payment processing.

The third option is to calculate the difference between your fixed rate mortgage and an interest only mortgage payment. By obtaining an interest only payment and paying the 30 year fixed rate payment you are again cheating the system by lowering the principle every month.

This results in building equity faster than the traditional fixed rate mortgage.

Home Equity Loans