Benefits Of Refinancing Mortgages

If you current mortgage loan is on the higher side, you can consider the idea of refinancing it with a lower rate of interest, and other better terms and conditions. If you plan well and get a good refinancing deal, you could well end up saving thousands of dollars on your mortgage. This is especially true for those homeowners who are insecure because they have an Adjustable-Rate Mortgage (ARM). There are certain terms and conditions that a homeowner has to fulfill to qualify for a refinancing option. A good credit score is one of the most important prerequisites for qualifying for a refinance.

A number of people take the decision of refinancing mortgages to cut down on their monthly installments. A high monthly payment can easily be reduced if the refinancer offers favorable terms and conditions. The following example will elucidate how refinancing a mortgage can help in reducing your monthly payments.


Joe had taken a $200,000 mortgage loan in 2010. The rate of interest was 4.5% and the term was 15 years. According to the agreement, Joe had to make a monthly payment of $1,560 towards the home loan. In March 2014, Joe refinanced his mortgage with another financial institution. He arrived at this decision after taking into account the fact he could do better with a lower monthly payment. According to the new mortgage plan, Joe gets a 30-year term at 5%, bringing his monthly payment down to $1,074. One important thing to remember is that although Joe might pay lesser every month, he pays more over the course of the loan. He will also have to pay additional charges, such as appraisal fees, refinance fees, etc.

There are still a lot of benefits of refinancing a mortgage; let us take a look at them.

Change in Mortgage Plan

Refinancing a mortgage gives homeowners the option of changing their mortgage plan. Sometimes, many homeowners are stuck with an ARM mortgage that has high interest rates. Refinancing a mortgage can give homeowners an opportunity of switching from an ARM mortgage to a fixed mortgage. Also, homeowners who want to extend or reduce their loan term can also do it by refinancing their mortgage.

What is a Second Mortgage? - Should I Get One?

So, you have heard a lot of people talking about second mortgages, but are yet to get a gist of what it exactly means. Well, simply put, as the name suggests, a second mortgage is an additional loan against your home; it gives you access to the equity in your home. For example, if your home is worth $200,000, and you have paid off $100,000 (including the down payment and subsequent installments), you have $100,000 of equity in your home. A second-mortgage lender takes into account this equity and offers you a loan.

Why do Homeowners Take It?

There are a number of reasons why people take out second mortgages; some do it to pay off their other high-interest loans, such as credit cards, auto loans, while some want to use the money to fund a home renovation or say, child’s education. Whatever the reasons may be, it is important that you consider the implications of taking out a second mortgage. Like a conventional mortgage, the lender files a lien against your home, meaning that if you default on your payments, you could end up losing your home.

Types

There are two types of second mortgages – home equity loans and line of credit. The former gives you a lump sum amount (depending on the equity in your home), which you have to pay along with the interest in a stipulated time. Line of credit on the other hand works more like a credit card; you have access to a certain amount of credit limit, and you can draw on it anytime you want to, provided you do not exceed the maximum amount.

It is Another Debt

While the idea of capitalizing on your home’s equity is tempting, you need to understand that at the end of the day, you are adding one more debt for which you will need to make monthly payments. Taking a second mortgage also involves additional costs, such as the cost of appraising the property, processing fees, annual fees, etc. The important thing that you need to keep in mind is that if you are not able to repay the loan, your home will be on the line.

Average Interest Rates

For homeowners in Toronto who are looking forward to take a second mortgage, it might be worthwhile to know that the interest rates are in the range of 10% to 15%. If you have considered all your alternatives and definitely want to take it, remember to take the services of a well-known and credible lender. 

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What is Bad Credit Mortgage Refinance?

A question often asked is whether persons with bad credit can avail refinancing mortgages. The answer to that is yes, refinancing mortgages are given out by lenders to persons with bad credit as well, and are known as bad credit mortgages refinances.

A poor credit rating is a bane in more than one way, as anyone with bad credit is well aware; the doors of many banks end up shut for us and those that aren’t end up charging a higher than normal rate of interest combined with an endless stream of paperwork and legalities. In fact, seldom do banks agree to refinance clients, an exception to this (often) unwritten rule being if the bank has funded the first mortgage on your home; even in this case, do not expect any benefits or a lowering of interest rate.

Financial institutions that give bad credit mortgages also do charge a slightly higher rate of interest, but in context this is a minor pitfall considering it gives you the opportunity to lower your overall interest rate and consequently decrease the amount of money you’ll be shelling out; besides, refinances also give you a chance to better your credit score (the last point is applicable provided your refinancing loans are repaid on schedule).

Bad credit refinances, like all bad credit mortgages, need an in-depth study of your finances, which is something that most good lending companies will help you with by giving you access to financial experts who can guide you with regard to the type of refinance most appropriate for you. There are no hard and fast rules when it comes to refinancing mortgages, and a variety of factors will be taken into consideration by a lender. It is advised that you too scout around for a plan which best suits your requirements.

Refinancing is doubly beneficial to persons with bad credit, since they allow you to consolidate the previous mortgages that were probably responsible for your poor credit rating in the first place. Persons with bad credit also often use refinancing to increase the duration of their loan repayment period, which proves a lesser strain on their finances. While the above two are the common ways in which it is used, refinancing are often flexible and can prove extremely beneficial for persons with bad credit, making them a viable option to look into.

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To Know Benefits And Pitfalls About The Home Equity Line Of Credit

Benefits:

The biggest benefit of home equity line of credit is that, it is an easy source of cash. If you have considerable equity in your home, you can tap that equity and fulfill your monetary needs without much trouble. Furthermore, though the interest rate on HELOC is more compared to that of first mortgages, it is still much less than the interests on other consumer loans and credit cards. Additionally, the interest is tax deductible. Hence, it is advisable to consolidate your debt with the home loan to enjoy the manifold benefits like lower interest rate, extended repayment term, and tax benefits and many more. It is the best way to arrange funds for short term, recurring costs such as payment of quarterly school or college fee. 

Pitfalls:

One of the major drawbacks of home equity line of credit is the variable interest rate. Though it is beneficial in some way, it is disadvantageous as well. For instance, if the interest rate at the time of borrowing was less and suddenly the market rate goes up, you will have to pay more. This bears more risk, since you have to be ready for both ups and downs. Another pitfall is that, if you fail to repay the complete loan amount within the agreed time interval, the lender can foreclose your property and put it for sale to get his/her money back. Therefore, if you do not want to lose your property, make sure that you borrow for the right reasons. 

It is recommended to do a complete research for finding a competent lender. Consulting a knowledgeable broker will introduce to more better and reliable options, since they have inbuilt contacts with potential lenders who are keen to offer homeowners with such loans and that too at very affordable rates. Moreover, conducting a careful review of your financial background before borrowing the money will help you in avoiding the pitfalls. 

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Canadian Mortgage Rates May Incline In 2013

Canadian property values have increased constantly over the past several years and will continue to increase in the future as well, which means buying property will be financially more challenging in the upcoming days. However, this predicament can be easily solved by borrowing mortgages from banks and lending institutions. Mortgages with bad credit have always been very beneficial for those who do not have the potential to buy residential property.

By borrowing mortgage from a bank, one can easily buy the property of his choice and reimburse the debt later with ease. But as we all know, borrowing loans and mortgages are not free and we have to pay a certain amount of interest to the lender. The cheaper the mortgage rate the, the more convenient it will be for the borrower to pay it back and the higher the mortgage rate the more difficult it becomes to reimburse the debt.

Experts are presuming that buying property in the coming months of 2013 will not only be difficult because of high property prices but also because of rising property mortgage rates. This is because demands for properties despite price hike have increased significantly in Canada and many have applied for property mortgages in the past few years. High demand for property mortgages is the primary reason that will drive lenders to make them expensive by increasing the interest rates.

With increasing property values and soaring mortgages rates, buying property will be literally impossible especially for first-time buyers. It is estimated that around 30 percent of the Canadians are without homes and have the will to buy property at some moment in the future. An increase in mortgage rates will be highly devastating and a big part of the existing population will become incapable for buying property. Considering that, buying property will be impossible for a large number of people because of expensive mortgages, sales will undoubtedly fall.

A fall in sales can be responsible for causing housing market depression in Canada by the end of 2013, which will ultimately lead to price fall. Experts believe that increase in mortgage rates can certainly bring a downturn in the Canadian housing market, which has shown growth for the past several years. Canadian housing market flourished during the time of great depression when US housing market was completely under recession. However, with increasing prices and mortgage rates the Canadian housing bubble may burst at any point in the future which will ultimately lead to lowering of property values. 

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