Refinancing Tips for Mortgage and Home Equity Loans

100% refinancing seems to becoming more difficult because of the sub-prime lending problems. Increased foreclosure ratios and negative amortization defaults have contributed to what many mortgage insiders are calling a foreclosure war.

Former Federal Reserve Chairman Alan Greenspan said the downturn in U.S. housing markets appeared to stem more from steep housing prices than from a decline in the quality of mortgage loans. He also indicated that there was a risk that the rising defaults could bleed into other economic sectors.

The National Community Reinvestment Coalition said tougher laws are needed to protect consumers from lenders pushing high-interest home loans. But, Merrill Lynch says the biggest concern is that tighter lending standards in the mortgage market, even if confined to lower-quality borrowers, will constrain overall housing demand and hamper recovery in the struggling housing market.


Legendary Fed Chief, Alan Greenspan

About $1.3 trillion in sub-prime loans are outstanding, of which $235 billion are expected to be reset to rates as high as 12%. If your adjustable rate mortgage is getting ready to reset, you may want to consider a 100% refinance into a fixed-rate loan with more favorable terms especially if your FICO scores have recently improved.

If you are a consumer with debt spiraling out of control, it's not too late to take advantage of your equity today and refinance your revolving credit card and adjustable rate loans with a home refinance loan. With fixed rate debt refinancing, you can pay off credit card debt, lower payments and save money.

Fixed rate consolidation offers lower interest rates than those of credit cards. And, unlike credit cards, payments you make on the mortgage interest could be up to 100% tax-deductible. Lowered interest rates translate to lowering monthly payments, which can really help if you're in a bind. Another added benefit to refinancing credit card debt with a mortgage refinance is that the mortgage interest rate is simple interest. This means that the interest is calculated on the principal balance only. With credit cards, interest accrues on the unpaid balance carried over from the previous month and becomes part of the principal balance. Interest then accrues on top of the new balance, and this cycle continues until you pay off the credit cards. With a 100% refinance loan, you can combine 1st and 2nd mortgages together and there's no mortgage insurance.

What if I have good rates on my existing mortgage?

If you have low rates and good terms on your existing mortgage, a refinance wouldn't make much sense, but a fixed-rate second mortgage could make good financial sense. Similar to a refinance, a second mortgage offers much lower interest rates than credit cards, and it is simple interest. Plus, the money you pay on your second mortgage interest could be up to 100% tax-deductible. There is no PMI (private mortgage insurance) for fixed rate consolidation with 2nd mortgages, either. So, you can still end up with lower payments and save money by refinancing high-rate credit cards with a 2nd mortgage.

 

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The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), passed in October 2005, has tightened BK filings and the process for filing has become more expensive. When the credit card companies nearly doubled the minimum payment requirements for credit card debt, many borrowers sought new avenues for debt settlement. Refinancing Credit Card Debt with a Debt Consolidation Loan Secured with a Mortgage

ARM vs. Fixed Rate Calculator
How does a fixed rate 1st or 2nd mortgage compare to an adjustable rate mortgage or home equity line of credit?


FHA Mortgage Rates

Your debt to income ratio compares the amount of your debt (minus your mortgage payment) to your gross income. The first step in calculating your debt-to-income ratio is figuring your gross monthly income, which is the amount you earn prior to all deductions. Refinance Loan Tips: Debt-to-Income Ratio?

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