Refinancing Saves Your Home Or Your Money
People who have an existing mortgage should seek to keep their homes even in stressful economic times. Allowing your mortgage companies to foreclose your property is a bad idea. If you did not already know, not doing anything just grows your debt exponentially because of interests being compounded. If you can no longer afford your monthly mortgage payments, there’s a better way to keeping your property than doing nothing: refinancing.
A simple way of understanding what refinance means is it is taking out a second mortgage to then pay off the existing mortgage. Recently it is not always the situation as it is being used as troubled debt restructuring which is allowing creditors to collect on a bad debt and giving the debtors some relief from their debt.
Under these circumstances, a refinance is achieved through tweaking the factors of interest – principal, rate and repayment period. When you apply to refinance your mortgage, the present value of the loan is calculated. This new principal sum would typically include the portion of the original loan principal remaining unpaid, interest that have accrued, plus any applicable surcharges.
After the new principal has been fixed, you negotiate a new interest rate. Often, the interest rates allowed by banks would depend on current market rates. Market rates fluctuate but refinancing is usually a favorable move when borrowing rates are low. However, if refinance is done to restructure troubled debt, the interest rate is always renegotiated whatever the market conditions are.
It is favorable, no matter what, if you refinance and get a lower interest rate than you had previously since the monthly payments will be more affordable for the debtor. The creditors make up the difference by giving a longer repayment time when the market rates are up.
Over the life of the refinanced mortgage, your creditors are likely to have made more money in interest. That doesn’t, however, make it an option you would generally think twice about, especially if your existing mortgage is already in trouble. The incremental increase in total interest you pay until the mortgage is paid off is almost always a bargain. If the exchange value you get is being able to afford your monthly payments and keep ownership over your home, it is worth it.
In recent times however, refinancing a mortgage has taken on a new purpose for homeowners. Although it is still primarily a means to restructure troubled mortgages, some homeowners actively consider refinancing as a way to actually save on interest payments. In this case, homeowners and their creditors play with the same factors – principal, interest rates and repayment period.
To save on interest costs, homeowners renegotiate an existing mortgage to take advantage of low interest rates or to shorten the repayment terms, if they can comfortably afford to make higher monthly payments. Holding all things equal, this situation still favors the bank or mortgage company as it speeds up repayment and reduces the risk of defaults and foreclosures. Banks, especially, prefer cash to inventories because it costs more to keep and maintain properties than to use cash.
For good quality writing on mortgage in Lansing, you should check out some of the posts on this site about Okemos mortgage.
December 5th, 2009 at 9:00 pm
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