Friday, June 17, 2011

Mortgage Refinancing Options

Mortgage refinancing can become a regular habit for some people as there are no strict rules on how many times you can rearrange the mortgage on your home. However, penalties may apply.

There are many benefits to mortgage refinancing, but people who find themselves in constant debt sometimes use mortgage refinancing as a way out. This is certainly not the best way to handle debt. The home will never be paid off at that rate and the homeowner eventually stands the risk of losing their home. Learning better ways to manage debt is a far better option than constantly using mortgage refinancing as a form of budgeting.

Before thinking of mortgage refinancing, consider other options. How much of your present and planned future debt can you dispose of? Do you really need the new "toy" you want to buy? You want that new quad, it's only $13,000.00 but, ask yourself this question first: Is walking around the acreage or using the old pickup so bad? What will you do with the quad anyway beside running in water ditches and jumping ridges? Ponder, maybe that is $13,000.00 you really do not need to add to your debt load.

Then there is that big wedding. With creative mortgage refinancing you can pay for that dream wedding. However, have you considered the ten or twenty year amortization you just added to your lifetime of debt? Along with that $20,000.00 "windfall" from your new loan there may be legal or disbursement fees to discharge the old mortgage, legal or disbursement fees to register the new mortgage, and other administration fees you have not even considered. Suddenly, the $20,000.00 dollar wedding has grown into $26,000.00 headache.

Do you realize that the equityyou have built up in your home over time is eroded every time you borrow against the mortgage? The equity is the difference between your home's market value and the outstanding balance of the mortgage. In plain English, your home equity is the amount you have already paid against the value of your house. Your home equity increases as you make more mortgage payments. If you are always borrowing against the mortgage, you are adding years of payments and wiping out any equity you have gained.

Another option in the world of mortgage refinancing is to get a home equity line of credit. This loan is also based on your home equity. Rather than giving you the loan up front in a lump-sum, you'll have ongoing access to funds up to an established credit limit through a line of credit. Watch out for that one if you are an uncontrolled spender! Great grandma left you her home debt free, and you take out a home equity line of credit to spend like there is no tomorrow. There is no free lunch here. Every purchase you make on this line of credit is debt against the property. It devalues the equity already in the home. You can sink yourself in debt and loose the home faster than it took great grandma to pay for it.

One good safety net is having a closed mortgage where your financial institution may not allow you to break your mortgage agreement. That might be a benefit, preventing you from burying yourself in debt.

Financially responsible people look at mortgage refinancing as an investment or when it is a last resort to get accumulated debt under control. The extra funds generated can be available for home improvements, college tuition and major purchases. Weigh your options carefully and shop wisely.

A mortgage refinancing specialist can talk to you about when and how to best apply for mortgage refinancing. They will assess your current debt load and spending habits to help you come with reasonable options that work best for your lifestyle. When you are considering mortgage refinancing for any reason or have questions about the current state of your refinancing plans, turn to the experts for solid, helpful advice.

Find out the latest information on mortgage refinancing from a trusted mortgage broker at First Foundation.

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