Get refinance: 2007

3/11/07

What is Refinance ?

Refinancing refers to applying for a secured Loan intended to replace an existing loan secured by the same assets. The most common consumer refinancing is for a home Mortgage .

3/10/07

The number of people facing difficulties with debts is rising, with many so desperate that they are willing to seek a new start through bankruptcy. But despite the relaxation of bankruptcy rules, this should still be the last resort. Follow our top ten tips to help you to start dealing with your debt problems:1. Acknowledge that you have a problem Add up your borrowings and assets to get a clear picture of your financial state. The Consumer Credit Counselling Service (www.cccs.co.uk) has an online quiz designed to help you assess your debts. BackgroundTen ways to get back into the black What is an IVA? Ten ways to improve your credit rating Ten ways to deal with debt 2. Stop being afraid of debt collectors Do not be intimidated by a nasty voice on the telephone demanding payment. Debt collection agents are under investigation by the Office of Fair Trading (OFT) after officials uncovered evidence of heavy-handed tactics. If you have a complaint against a debt collection company, call the OFT on 08457 224499. 3. Never just pay the bank that shouts loudest Prioritise debts. Make your mortgage and debts secured on your property a priority — you risk losing your home if you default on these loans.
4. Seek free, informed advice Obtain professional help from someone who is not trying to relieve you of even more money. You can consult debt advisers from organisations such as Citizens Advice and adviceUK. Debtors can call the National Debtline helpline on 0808 8084000.5. Beware of commercial debt companies offering help Debt advisers have attacked debt management and loan consolidation companies for exploiting customers with expensive fees and charges. Not all these companies are sharks but they are in the business of making money. At best, the solutions offered are appropriate for a tiny minority of borrowers.6. Do not rule out going to the wall You may not believe that the stigma of bankruptcy has gone, but it has become easier to go bust. The period over which a bankrupt can discharge debts was cut last year from three years to one. Going bankrupt can mean losing your house and any vehicles you own, so it should not be taken lightly. It may also affect your chances of employment. There are severe penalties for those who have run up debts in a profligate manner and see bankruptcy as a mere formality.7. Beware of firms offering an alternative to bankruptcy There has been a 70 per cent year-on-year rise in the number of people signing up to individual voluntary arrangements (IVAs). However, an IVA, a legally binding agreement in which an insolvency practitioner formulates a five-year repayment plan with a debtor’s creditors, suits only a small minority of debtors. The schemes typically levy fees of £7,000.8.Discipline is crucial Some high street banks are encouraging customers who are suffering repayment difficulties to enter into agreements that consolidate all their borrowings into one loan. This can be a solution, but only if you stop spending.9. Take a close look at free ways to escape debt Free debt management plans can be set up by Payplan (0800 0854298) and the Consumer Credit Counselling Service. They will organise monthly payments on your behalf and help you to negotiate with banks and credit card firms. 10. Stop using shopping as a form of therapy If your idea of stress relief is a spending spree with your flexible friend, find another hobby.
From Times Online

Points / Premiums

Refinancing lenders often require an upfront payment of a certain percentage of the total loan amount as part of the process of refinancing debt. Typically, this amount is expressed in "points" (also sometimes called "premiums", with each "point" being equivalent to 1% of the total loan amount. Therefore, if the refinance option selected involves paying three points, then the borrower will need to pay 3% of the total loan amount upfront. Most refinancing lenders offer a variety of combinations points and interest rates. Paying more points typically allows one to get a lower interest rate than one would be capable of getting if one paid fewer or no points. Alternately, some lenders will offer to finance parts of the loan themselves, thus generating so-called "Negative points" (also called discounts).The decision of whether or not to pay points, and how many points to pay, should be taken in consideration of the fact that with points, one tends to trade a higher upfront cost in exchange for a lower monthly premium later on. Points can be paid out of the cash saved by refinancing the loan in the first place.

External Links & References

External Links

U.S. Department of Housing and Urban Development - Streamlining your Mortgage
U.S. Department of Veteran's Affairs - Mortgage Refinancing Information
U.K. Refinancing Information

References

Refinancing your Mortgage Information From the department of Housing and Urban Development.
www.in.gov/sos/securities/investmentwatch/pdf/loan_brokers.pdf

Risk of refinance

Certain types of loans contain penalty clauses triggered by an early payment of the loan, either in its entirety or a specified portion. In addition, there are also closing and transaction fees typically associated with refinancing a loan or mortgage. In some cases, these fees may outweigh any savings generated through refinancing the loan itself. Typically, one should only consider refinancing if one stands to save a substantial amount of money from doing so, either in the short or long-term, or if there is a need to extend the loan in order to pay for unexpected costs such as medical expenses.In addition some refinanced loans, while having lower initial payments, may result in larger total interest costs over the life of the loan, or expose the borrower to greater risks than the existing loan, depending on the type of loan used to refinance the existing debt. Calculating the up-front, ongoing, and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance

Advantages of refinance

Refinancing may be undertaken to reduce interest costs (by refinancing at a lower rate), to pay off other debts, to reduce one's periodic payment obligations (sometimes by taking a longer-term loan), to reduce risk (such as by refinancing from a variable-rate to a fixed-rate loan), and/or to liquidate some or all of the equity that has accumulated in real property during the tenure of ownership.In essence, refinancing a mortgage or other type of loan can lower the monthly payments owed on the loan either by changing the loan to a lower interest rate, or by extending the period of loan, so as to spread the re-payment out over a long period of time. The money saved can be used to pay down the principal of the loan, thus further reducing payments. Alternately, refinancing can be used to transform available equity in one's house into ready cash, available for other purposes or expenses.[1]Another use of refinancing is to reduce the risk associated with an existing loan. Interest rates on adjustable-rate loans and mortgages shift up and down based on the movements of the various prime rates used to calculate them. By refinancing an adjustable-rate mortgage or so-called "Balloon" mortgage into a fixed-rate one, the risk of interest rates increasing dramatically is removed, thus ensuring a steady interest rate over time.Refinancing a loan or a series of debts can assist in paying off high-interest debt such as credit card debt, with lower-interest debt such as that of a fixed-rate home mortgage. The net savings between the two interest rates can then be applied either towards further paying down the debt, or other purposes. In addition, non-tax deductable debt, such as credit card or car loan debt, can be transformed into tax-deductable debt such as home mortgage debt, potentially lowering one's taxes or shifting one into a more advantageous tax bracket. This type of arrangement is often associated with a Cash-Out Refinance. [2]