Advantages of Refinancing Mortgages – Save Money by Possibly Consolidating Debt into a Home Loan or Renegotiate Your Credit Card Debt with Banks

May 24th 2006

Home Finance

Some homeowners may find themselves with high credit card debt and equity in their homes. Some will consider debt consolidation as a way to save money and meet their obligations. It is always a good idea to talk to a professional before making the jump.

Recently credit card companies were required to double their minimum payments while bankruptcy laws have made it harder to extinguish credit card debt in court. For some homeowners it may make sense to look for a good rate or loan that fits them so they can save money and possibly add a deduction to their taxes. Always talk to your tax preparer to make sure this is the right course for you.

Before you decide on refinancing your home you may want to call your creditors and ask them to lower the interest rate on your credit cards. Always save promotions from credit card companies; you may never know when you need it.

So what loan should you choose? Interest Only Loans have been a favorite for some people who plan on a short stay in their house. These loans can have incredibly low payments for the first ten years. Some will include a balloon payment at the end of that term, while others convert to a conventional interest plus principle loan for the rest of another term.

Another option, if you plan on staying in your home longer, is the Equity Line of Credit. These loans may include an adjustable rate mortgage until the rate is locked in for the rest of the term. There may be several locks for the first ten years, and then the loan may convert to a fixed rate mortgage.

The beauty of the equity line of credit is that if an emergency comes up, you have the equity in your home at your fingertips. All you need to do is write a check. In most cases, after you write a check the money is drawn as a loan and goes directly to your balance.

Adjustable rate mortgages can also save the homeowner on their monthly payments. These loans typically are used for buyers who expect to make more money in the future but need lower payments right now. If you feel interest rates are going to go up, this is a bad loan. There are provisions in the loan that can lock in the maximum monthly increase in premiums and maximum yearly interest rate increases. There may be other measures that prevent the homeowner from being swamped with huge payment increases.

There are endless types of loans to choose from. Picking the right loan can save you both grief and money.