Kamis, 22 Oktober 2009

Refinance Home Loans in Tough Times

If it is getting tough to pay off existing loans in your household, you can consider refinancing your home loan. Refinancing is the act of taking another loan (preferably with a lower interest rate) to pay off an existing loan. This is a common practice for people in either financial trouble or people who wish to save money by taking a loan with a lower interest rate, thus paying off the existing loan and starting to spend less money for loans each month.

If you are in serious financial trouble and can't see the burden being taken away by classical means, there is a chance that you can refinance at a government institution. You can check if you can apply for a government bailout at makinghomeaffordable.gov or some other government homepage. The money spent for household bailouts is getting cut off budget soon enough, because the recession has ceased. Thus, hesitating to get a government loan isn't really the smartest thing to do, as it can be gone in a second.

It is not rare to see people getting into trouble because they make simply too many refinancing operations. There actually are people who refinance their loans ad infinitum (like once a year), but doing some simple math should show you that refinancing loans more than three times is kind of... useless. For example, you have a 9 per cent loan, but you refinance it to become a 7 per cent loan... then you see an offer that you can get a 6 per cent loan (well, hardly ever seen, but I'll use 6 per cent for illustrative purposes) and take it. It seems that you save a whole 1 per cent of the price of the property by doing the third loan refinancing, but it's obviously not like that. First of all, you most probably extend the mortgage for months by getting another refinancing, thus you pay more, but in less payments, especially if the loan has a varied interest rate. Secondly, you are required to pay for things like loan processing, administration, application, inspection, appraisal, credit report and many, many more subtle things which can make refinancing your existing loan... worthless.

You have to do a lot of math when you work with loans since a lot of money can just 'disappear' when you do a refinancing operation. If you managed to save some cash by refinancing, it is always smart to invest it to even further increase your monthly cash flow. Or, you can choose to shorten the loan time if you no longer want to live in the house. It's entirely up to you.

Still, in the end only two things matter after you've taken a home loan: the fact that you've saved yourself and your family from a serious disaster... and the fact that you have probably saved some money in the process. Remember that it is recommended to do a refinance on a home loan only if the interest rate goes at least two per cent down from the original starting point. For example, a 10 per cent loan going down to 8 per cent is viable. Otherwise, it's not worth it, unless you are in a really tough situation.

A home loan refinance can help save you money and lower the monthly repayments on your loan. Another loan product which can reduce monthly interest expenses are debt consolidation home loans.

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