Is Refinancing a Mortgage Really Worth the Hassle?
There are a few reasons for one considering refinancing a mortgage. Some people think that it is the best way to consolidate debt and some find mortgage refinance as a way to liquidate equity by applying for Cash-Out-Refinance. Refinancing, especially with bad credit may not be solution for your situation due to the high rates and prepayment penalties involved.
Refinancing for the Purpose of Improving Credit Ratings
Low credit ratings make a mortgage refinance expensive and not always worth while. If you plan on refinancing only to improve your credit score you might find that it isn’t the best scheme. Truth of the matter is that you can repair your credit by paying your monthly payments on time. After several months you will see your credit score climb without the need of mortgage refinancing.
Reducing Monthly Payments by Refinancing a Bad Credit Mortgage Loan
People who have an Adjustable Rate Mortgage (ARM) and find the payments to be high, meaning, increasing their debt, are advised to refinance their mortgage to a lower fixed rate. You can find and compare online mortgage lenders that hopefully will quote you decent rates. Don’t forget to negotiate the terms and conditions for your benefit. The best interest for you would be the lowest rates as possible and waiving closing costs. That isn’t guaranteed to happen but defiantly worth the try. A good convincer would be to put a large down-payment, to negotiate the closing costs with. As to the interest rates the best thing you can do is to take time and compare a handful of lenders the best rates and mortgage options.
Cash-Out-Refinancing Liquidating your Home Equity
When you’ve obtained the mortgage you only put part of your house as collateral to secure the loan. For example your house is worth $150,000 and you have a mortgage of $50,000 the difference is known to be your equity. Naturally there is a minimum and you cannot use the total equity but you may liquidate your qualified home equity for cash expenses. Some use the cash to consolidate debt or for home improvements. Depending on your problems you may want to consider a home equity loan as an option. This can eliminate your credit card debt. Remember not to make the mistake of building up your debt again. If you need some help contact a credit counselor or discuss the issue with your mortgage lender.
When looking into bad credit mortgage refinance be sure to pay attention to the fine print. Compare mortgage lenders to get the best quote possible.
Joel Cohen
http://www.articlesbase.com/mortgage-articles/is-refinancing-a-mortgage-really-worth-the-hassle-122954.html
Comments
how much of a change would i see in my mortgage payment if the interest rate went from 6.3% to 5.5%?
would it be worth the hassle of refinancing?(my mortgage is for about 127,000) i was told my interest rate would be reduced to 5.5% but then on paper it says 5.5% in one place and almost 6% "APR" i dont really understand what the APR is or how it effects the payment and the total amount paid over the life of the loan.
so two questions i guess…
1) whats the savings i would see on my monthly payment if i reduced it by .8% on a 127,000 loan
2)what is "APR" how does it effect my loan.
30 year fixed
1) It depends on how many years your loan is for.. I can’t calculate exact savigs without that
2) APR means annual percentage rate. That is the rate of interest you will pay on that loan. It is usually compounded. Ask you banker to give you a print out of your loan and compare.
Alright - so right now you are paying around $786? $667 of that is interest. (assuming monthly compounding)
For 5.5% on 127,000 with 30 year loan your payment decreases to around $721 with $582 of that amount being interest charges.
I know it seems like a lot in interest right now.. but it decreases as you go. You could also make your whole monthly payment go towards the interest. This way you save some money in the end.
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I don’t know what an apr is either. But , I just happen to be looking at a loan calculator bc I’m wanting to get a loan soon. But ne ways, if its a 30 yr mortgage, i’m guessing your payment is around 786/mo. If it goes down to 5.5 it would be around 704/mo. I’m guessing around a 80/mo difference. To me it would definatly be worth it. Hope it all works out good.
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How long have you had your existing loan? If you refi for another 30 years your payments may be lower, but you will be paying longer than your current 30 year loan, so it might not be that much savings when you factor in closing costs and possibly points (which are like a prepayment penalty in disguise).
My original mortgage in 2002 was 7% for 30 years. In 2005 I refi’d with my existing lender to 5.99% for 20 years, shaving 7 years of payments off of my loan ($62,000 interest) for $170 closing costs and an extra $30/month. But I checked recently and it looks like points and closing costs would be about $4000-5000 for 15 year loan with basically unchanged payments. I would come out ahead paying down principal instead.
There are some spreadsheets around that calculate how much extra principal payments shorten your loan. That does not allow you to skip payments, it just ends your loan from months to years sooner. Spreadsheet examples http://www.mtgprofessor.com/spreadsheets.htm
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