Existing mortgage: Is it necessary to refinance?

In the recent times, you must have heard a lot about refinancing, isn’t it? But what is it all about? Well, refinancing can be defined as paying off an existing mortgage and replacing it with a new loan. There are various reasons why the borrowers are tempted to refinance their mortgage. Read on to know about some of the major reasons to refinance your existing mortgage.

Lower your existing interest rate

Some years back, the interest rates available for conventional as well as FHA loans were quite high. Borrowers had no other option but to go for those high rates. However, after the sub-prime mortgage crisis, mortgage rates have reduced drastically and are at an all time low. If you’re one of them and want to take advantage of those low rates, then you can refinance your existing home loan. This will help you in saving quite a large sum of money in interest payments.

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Shorten the loan term

One of the major reasons to get your home loan refinanced is to shorten the loan term. If you have a 30 year loan and want to lower the loan term to 15 years, then refinancing will be your only option. You can contact your existing mortgage lender or contact other lenders as well in order to get your home loan refinanced. Shopping round will help you take out some of the best mortgage deals as per your requirements.

Change the loan type

If you want to change your adjustable mortgage to a fixed rate mortgage or vice versa, then refinancing is your only option to go for. Adjustable rate mortgages offer an introductory low rate when you go for it and then the rates may increase or decrease depending upon the market situation. As the rates are going low, it can be converted to a fixed rate mortgage with the help of refinance. Thus, your mortgage rates will remain low for the loan term.

Cash out your home equity

If you have equity in your property and want to use it to finance any large purchase or consolidate your unsecured debt, then you should try refinancing your existing mortgage. This will help you cash out the equity that you have in that property. You can use the cash out money to pay off your medical debts, credit card bills, payday loans, etc. You may even use it as a down payment for your new car that you plan to purchase in the near future.

While you refinance your existing mortgage, you will be liable for paying quite a lump sum amount in closing costs. When you plan to refinance your existing home loan, you should first decide as to how long you plan to stay in the property. It won’t be a good option to refinance the mortgage if you plan to move out of the property within the next 2 years as you won’t be able to offset the closing costs. However, if you want to stay in the property for a long period of time, then refinancing is the best option to go for.

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Does bankruptcy have adverse impact on your mortgage lending?

It is a well known fact that filing of bankruptcy is the least thing one would like to do. Nobody will be inclined to do it. However, when you are faced with some serious financial problems and you have no other alternative, what can you do? The only way out for you will be to file bankruptcy. Even here, you will have to assess the situation carefully. And if you have any mortgage at present, you should take that into account and the impact bankruptcy will have on it. For your information, a couple of options are available pertaining to bankruptcy. One option is Chapter 7 bankruptcy and the other option is Chapter 13 bankruptcy.

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Options of bankruptcy

In Chapter 7 bankruptcy, known also as total bankruptcy, your entire debts, or at least a major portion of your debts will be written off. And you will be asked to dispose some of your assets so that you can make the repayment in respect of some dues. This bankruptcy is also known as ‘straight bankruptcy’ or ‘liquidation bankruptcy.’ Under this, you will be exempted from repayment of debts, of course with a few exceptions. Chapter 13 bankruptcy, on the other hand, is a ‘repayment plan.’ Here, the bankruptcy court will have the power to take a decision as to how your dues are to be cleared. Some of the dues will be settled in full, and the balance debts may be settled in part or may be written off in full.

Two categories – Exempted and Non – Exempted

In this bankruptcy, the whole of your properties will come under two categories – exempted and non-exempted. Whatever properties that fall under exempted category, you may keep them with you during the whole period of bankruptcy proceedings . As far as the properties that come under non-exempted category, you have only two options – either you surrender these properties or pay cash equivalent to the value of the properties as part of the bankruptcy. May be, in a few exceptional cases, you will be allowed to keep possession of properties coming under non-exempted category; it depends on how the bankruptcy trustees decide. To know what will be the impact of chapter7 bankruptcy on your mortgage, you should have knowledge about a ‘loan’ and a ‘lien.’

It is known fact that a mortgage company provides the fund for buying a property. The company will, naturally, have a lien on the property, which means the company has a hold on the property till such time the loan is discharged. When you file bankruptcy under chapter 7, the mortgage company, because of the right it has over the party, will choose to take any action in the matter. However, under chapter 13 bankruptcy, there is no chance of your losing the property. But then you will be asked to submit a detailed plan as to how you will repay the loan. An automatic stay, issued by the bankruptcy court, will prohibit the lender from taking recovery proceedings.

The moment you file the petition for bankruptcy, under Chapter 7, the lenders will not be inclined to consider giving any fresh loan to you, at least for a minimum period of two years. If, however, any lender comes forward to offer you a loan within two years from your filing bankruptcy, it is better you get full details of the offer and go through them carefully. You should consider the total cost involved in the loan offered. If, however, you have filed bankruptcy under Chapter 13, you can apply for and get a fresh loan after one year from the discharge of your bankruptcy petition. All said, before filing bankruptcy petition, you would do well to have frank and detailed discussion with a professional.

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