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Bad Credit Alliance is a
complete bad
credit mortgage refinancing center
that believes in consumer education. As a customer service, we
provide this series of articles to help you better understand
your mortgage and bad credit refinancing options.
You may be considering refinancing, and are wondering if the
time is right, or if you could save money by doing this. There
are several options when considering refinancing. One is to
refinance your original loan: you get a whole new loan at a
lower rate. Or, you may choose to get a bad
credit home equity loan (known
as a second mortgage on the equity, or value you have in your
home after deducting your current mortgage value) to consolidate
debts or finance projects.
There are several good reasons to consider
refinancing your house or condo
mortgage, or obtaining a home equity loan. These
include:
Paying a lower interest rate: if interest rates have
dropped at least 2% since you originally financed your home,
then you can probably lower your monthly payments quite a bit.
The rule of thumb is that if the savings will cover the closing
costs within the first 30 months, then refinancing is a good
idea. The mortgage financial
specialists at Bad Credit Alliance, we can help you
determine how much you will save in monthly payments with your
new loan, after factoring in closing costs, and whether this is
a good option for you. Also, some lenders now offer '0 points'
loans, meaning that refinancing may be an option even if
interest rates have only dropped 1% since you originally
financed your home.
Switching from an adjustable rate mortgage (ARM) to a
fixed-rate mortgage: some ARMs offer the option of
re-financing your mortgage as a fixed-rate mortgage during
certain time periods. This can be a wise option to use if
current interest rates are low, and if you plan to live in your
home for many years.
Refinancing a previous balloon
mortgage: If the end of your loan term is coming
near, you may want to consider refinancing with a more
traditional mortgage. Refinancing allows you to pay off the
balloon payment, and begin building equity in your home.
Bad Credit Debt consolidation: Many times, it can be difficult to
pay off credit cards or other loans with high interest rates.
One option is to use the equity in your home to obtain a
low-interest loan that consolidates these debts into one loan
that has a lower rate of interest – and lower monthly payments.
Also, many people carry both a first and second mortgage on
their home, and want to consolidate the two loans into one
payment-at a reduced interest rate. This is a sensible option,
with interest rates dropping to historic lows in recent months.
Again, the criteria becomes: after paying off closing costs and
finance charges, will I be saving money in the long run?
Financing Special projects: Remodeling a home, starting a
new business, or financing your children's college education are
expensive. One option for financing projects such as these it
to obtain a home equity loan. Normally, you can borrow up to 75%
of the appraised value of your home (this can vary, though,
between lenders, which is why it's important to check and see
who offers the best terms and rates). Ideally, it's best to
avoid borrowing more than 80% of your home's equity, or you will
be required to carry private mortgage insurance (PMI).
Shorten Loan Term: Some people choose to refinance to pay
off more of the principal on their first loan, reducing
its length of term. This means paying slightly more each month,
but you will save quite a bit in interest in the long run. You
will also build up equity more quickly in your home.
One nice thing about home equity loans that are used for
refinancing or debt consolidation is that the interest paid on
the new mortgage is often completely tax deductible,
which sets them apart from other loans. Check with your tax
advisor for his or her advice in this-you may be pleasantly
surprised!
Bring the Right Documents to the Closing
When refinancing or obtaining a home equity loan, you will need
to provide the same paperwork that you did at your first
closing. Your lender will do a credit check, and you will need a
new appraisal, home inspection, title search, survey, and
insurance documentation. You will need to buy title insurance
for this new loan when refinancing, since lenders require this
as a protection for them.
You
may be charged points for your new loan, and processing fees,
which will need to be paid when the loan closes. And just like
getting your original loan, you will need to bring a cashier's
or certified check to pay these closing costs. Different lenders
have different payment options; some will ''rollover'' the
closing cost fees into your loan, but it's a good idea to
compare the cost of doing this over the term of your mortgage,
versus paying the fees up front.
Refinancing or getting a home equity loan is an option for many,
since it can offer the financial freedom to pay for special
projects, or can lower your monthly debt payments. 
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