Mortgage Loan ABC - Ramifications of Refinancing

Ramifications of Refinancing

In the recent past, with the prices of homes on the rise, complemented by falling interest rates and a need to convert one's accumulated home equity into expendable funds, millions of people have got the opportunity to refinance the mortgage on their residence. Often, this has worked to their advantage since refinancing has resulted in a vastly lower interest rate and lower monthly mortgage payments, thereby letting homeowners spend or save a certain part of their incomes that are no longer repayments to their mortgages.

In order to refinance, homeowners sometimes borrow more than they need to pay off an earlier mortgage and so cover the transaction costs of refinancing, and then liquefy the equity they have put together in their homes. With these funds, they make home improvements, repay older debts and buy goods, services or

assets they can't otherwise afford.

Why you should refinance: First, you need to take a good look at your current interest rate to do your best for your funds. It is well worth refinancing your current mortgage if your new interest rate is over % to 5/8% your current interest rate. But if you want to lower your closing costs as far as possible, see that your current rate is at least 1% lower.

How much can refinancing save you? This depends on several factors relating to your present mortgage situation. If your interest rates are low, it can bring in substantial savings to your funds, perhaps even thousands of dollars! And when rates rise, refinancing from a conventional loan to a variable rate loan, you can stand to gain substantially.

Benefits of refinancing: Choosing to refinance a home mortgage is a tough decision and needs careful consideration of one's costs and the benefits that will accrue from refinancing. You will realize that when interest rates on mortgages fall below the rate on your existing loan, it's a good idea to refinance. At a time like this, you need to look at the prospective after-tax savings from lower monthly payments if you were to take a lower-rate loan and compare it with the after-tax expenses of refinancing. This would include mortgage fees or points, application and appraisal fees. As the loan is repaid, the savings from your lower interest payments begin to accumulate. As a result, the funds that would have been saved due to refinancing must be discounted at the present rate and compared with the transaction or closing costs.

People usually go in for refinancing to save money, but there are other reasons also, such as:

Reducing your monthly loan installment: If you reduce your monthly mortgage installments, you can end up refinancing your existing loan at a lower rate of interest. This can save you funds in the long run.

Consolidating your debts: Perhaps you prefer to refinance to consolidate your debts (e.g. a student loan or a loan on a credit card) and prefer paying a low-interest loan rather than a high-interest one. Now, you can clear all your outstanding debts and replace them with just one low-cost cheaper monthly payout.

More tax deductions: If you have lower interest rates, it means smaller interest deductions on Schedule A.

Mortgage interest: You are allowed to deduct interest on a debt of up to $1 million incurred to buy your house and one more home. Also deductible is interest on up to $100,000 of home equity loans due to these two residences. If you refinance a mortgage, the interest on this loan is deductible to the limit of old mortgage plus $100,000.

Points: The interest charges you pay up-front or points are really interest that's pre-paid and must therefore be deducted proportionately during the tenure unless you have purchased or improved your existing principal property.

Also, if you have bought a holiday home or real estate as an investment, points should be deducted proportionately over the loan term. Or, if you have refinanced a mortgage on which you had been reducing points proportionately, you could stand eligible for a tax bonus. Now, you can subtract any part of the points for the mortgage already paid off that you had not yet deducted since the year of refinancing.

6 Tips for the Virgin Home buyer What to know before you sign on the dotted line

Score High and Keep Interest Low The Ins and Outs of Credit Scoring

Highway robbery How to avoid getting taken advantage of in the loan process

Dont Lose Your Shirt or Your Home Keep an eye out for crooked mortgage companies

This Option may not cost you an ARM Consider your Options with Adjustable Rate Mortgages

Mortgage Loan
◦ 5 Scams - Countdown of the most extreme
◦ A Lending Hand - Only Good Credit Need Apply
◦ A Risky Proposition - How You Score Matters
◦ APR, FICO, HELOC - The FAQ's on these Little Initials and More
◦ Asking the Right Questions before Signing a Loan
◦ Balloon Payments Full of Hot Air?
◦ Case in Point - Negotiating Mortgage Points before Signing Anything
◦ Closing the Deal: Plowing through the Mortgage Paperwork
◦ Crossing that Bridge Loan when you come to it
◦ Don't Come in Second when Shopping for Reasonable Second Mortgage Terms
◦ Don't Lose Your Shirt or Your Home - Keep an eye out for crooked mortgage companies
◦ Don't take it personally-What to do when you are turned down for a loan
◦ FICO: Your Personal Financial Score Card
◦ Friends Don't Let Friends Loan Money:
◦ FYI on PMI - General Information on Private mortgage insurance
◦ Give yourself a little Credit:
◦ Glutton for Punishment? Co-sign a Loan
◦ Go for Broker: A Mortgage Broker Can Pay Off for You
◦ Government Grown Loans - The Lowdown on FHA and VA Loans
◦ Highway robbery - How to avoid getting taken advantage of in the loan process
◦ House Rich and Cash Poor - Buying a home that you can afford
◦ How do you Rate? Credit Reports Tattletale on your Finances
◦ In a Fix: Unsurprising Mortgage Payments you can Count on
◦ Kids in College Can Be a PLUS - Parents, Know your Education Funding Options
◦ Lending a Hand: How to Help Family financially but not get taken advantage of
◦ Lying about loans - Legality of using loan money for something other than its purpose
◦ More house than you need? Shop around before signing
◦ Mortgages Can Be Taxing - What You Should Know about Closing Costs and Fees
◦ On the Road Again: Advice about loans for RVs and other recreational vehicles
◦ One size does not fit all - choosing the right loan for you
◦ Owning vs. Renting - The Big Debate
◦ Pay them off - The advantages of paying
◦ Payday Loans REALLY Make You Pay in the End!
◦ Pre-approved for a loan? Don't get your hopes up
◦ Ramifications of Refinancing
◦ Scam is a Four-Letter Word in the Mortgage Category
◦ Score High and Keep Interest Low - The Ins and Outs of Credit Scoring
◦ Shop 'til the Rates Drop - Looking for a Great Mortgage Interest Rate
◦ Speak the same language - Learn the lingo of loans
◦ Study your Options on Student Loans
◦ Take Note of the fine print on your mortgage papers
◦ The ABC's of Amortization
◦ The Lowdown on Loan Options
◦ The Mystery of Mortgages
◦ The Payoff of Student Loan Consolidation
◦ The Pros and Cons of Consolidation
◦ This Option may not cost you an ARM - Consider your Options with Adjustable Rate Mortgages
◦ Upside Down - Avoid Owing More on your Loan than the Value of your Car
◦ When disaster strikes - Find out your options BEFORE something happens
◦ Buying or Selling, is the Mortgage Your Only Option?
◦ Equity and Your Home, A Hidden Asset?
◦ Fannie Mae and the Home of Your Dreams
◦ Financial Planning and Interest Only Mortgages
◦ Government Approved Mortgage Loans
◦ Home Equity Lines of Credit
◦ How Does Fannie Mae Work?
◦ How Real Estate Drives the Interest Only Mortgage Market
◦ How to Shop for Low, Interest Only Mortgages
◦ Interest Only and Credit Card Debt
◦ Interest Only In Your Best Interest?
◦ Interest Only Mortgage versus Balloon Notes
◦ Interest Only Mortgages: A Risky Real Estate Move?
◦ Interest Only Mortgages and the LIBOR, What is it?
◦ Interest Only Mortgages and the Young Professional
◦ Interest Only Mortgages for the Wealthy Investor
◦ Is the 20% Down Requirement Still Alive?
◦ Is Your Credit Working Against Your Mortgage Options?
◦ Middle America Goes Upscale on Interest Only Options
◦ Mortgage Companies: Specialty Guys
◦ Mortgage Interest and Your Tax Liability
◦ Mortgage Products: The 15 FRM
◦ Mortgage Products: The 15 Year ARM
◦ Mortgage Products: The 20 FRM
◦ Mortgage Products: The 20 Year ARM
◦ Mortgage Products: The 30 FRM
◦ Mortgage Products: The 30 Year ARM
◦ Mortgage Products: The Adjustable Rate Mortgage

A Home Mortgage Loan Calculator Helps you Determine Affordability of a Home