How does a mortgage refinancing work?

A home loan is a long term commitment. For most people, signing on the dotted line is a 30-year contract. In this amount of time, many things can change. Many people will outgrow their home and sell their house. Sometimes, people also outgrow their mortgage. In this instance, mortgage refinancing can be useful.

Benefits of a Mortgage Refinance

There are many reasons why people decide to refinance their home. As you pay off your home loan, the principle of your loan reduces while the value of your property increases. The difference between these two figures is known as equity. When you refinance your home, the bank may give you a home equity loan. You can use this money to improve or enlarge your home, pay for tuition, or even take a holiday.

Sometimes, as a home loan decreases, home owners decide to refinance in order to lower their monthly repayments. This is a good option if you are struggling with difficult financial times or are just looking to free up cash flow for other projects.

Refinancing your home also gives you a chance to renegotiate your loan terms with your bank or lender. This means that you may be able to achieve a lower interest rate and also lessen the fees and charges which are attached to your home loan.

The Refinancing Process

When you refinance your loan, you can stay with your current lender or shop around for a new one. The refinancing process is similar to the one when you originally bought your house and applied for a mortgage, although sticking with the same lender will require less paperwork.

The bank or lender will most likely go ahead with the usual checks, such as employment and identity checks. They will also require a valuation of your home, which they will arrange. Once this has all been finalized, your old mortgage will be discharged and your new loan will come into effect.

There are usually some fees attached to a refinance loan. These can include a loan establishment fee, a valuation fee, and the possibility of ongoing fees. There is a chance that there may be a fee from your lender for the early discharge of your loan.

Home Loan Research

Finding out as much mortgage information as possible before you sign up for any loan is a good idea. Being aware of not only the interest rate, but the fees and charges attached to the loan product, is essential. Reading the small print now can save a lot of heartache later.

 
Credits to Paul Dabb for this article.

Same day cash loans are a source of cash for urgency when you need it in the same day without any hassles. These types of cash loans are usually approved for employed people and the loan amount is wired within 24 hours in your bank chequing account.

These loans are typically provided in the same day as its approval comes without credit checks and other hassles for the borrowers. This loan makes for a hassle free approach as you are not required to fax any documents to the money-lender. This saves time, energy and effort. However, while filling an online loan application form you have to provide necessary details such as employment status and bank account details.

Same day cash loans are quickly provided within 24 hours in your bank checking account that you should be having for past three months. You can borrow the loan amount ranging from $100 to $1500 for a short duration of two weeks, until your next payday. Money-lenders sanction the loan amount depending upon your repaying ability and current income.

Do I qualify?

In case you are carrying a bad credit history with late payments, defaults and county court judgments, individual voluntary arrangements and missed payments, you can still borrow from the lenders without credit checks. Even your very low credit rating is not a hurdle.

So what’s the catch?

Same day cash loans are highly expensive. This is due to the high APR that goes many times higher than any other loans. Consequently, you should be prepared to make high interest payments to the lenders.

You should borrow the cash only when other options cannot be explored. Make sure you avail this facility only when in dire need of money because these loans carry a high interest rate. You should make comparisons of several lenders online so that you can search competitive offers of same day cash loans.

 
Credits to Angela Alderton for this article.

What is the difference between a debt consolidation loan that is secured and one that is unsecured?

In case of the former, there is a security that is attached to the loan. In most of the cases, it is your home. Just as there is an advantage of availing secured debt consolidation loans, there is a major disadvantage too.

 
The benefit you avail in case of secured debt consolidation loans is that they attract lower rate of interest. The disadvantage is if you fall behind on payments, you may lose your home as creditors will not hesitate to take away your home in case of non-payment.

Unsecured debt consolidation loans on the other hand do not require any security. And you don’t put your home at stake. Unsecured debt consolidation loans can be used for making payments for anything under the sun. But the rate of interest, unsecured debt consolidation loans attract is very high.

You can take out unsecured debt consolidation loans if you have a good credit rating. It doesn’t mean that you will not get access to one if you do not have a good credit rating. Unsecured debt consolidation loans are also meant for people with bad credit but the rate of interest will be very high. Nevertheless, it is difficult to find a lender that will extend a loan if you have a bad credit rating because following the credit crunch; lending institutions have adopted very stringent lending norms. So, shop around for the deal that will serve your purpose.

Unsecured debt consolidation loans can also be taken out online. If you are planning to take out unsecured debt consolidation loans online, you get the benefit of comparing the rates that are offered by the different lenders. Many online lenders will also answer to your queries if you have any related to unsecured debt consolidation loans. The eligibility criteria for qualifying for unsecured debt consolidation loans may vary from one lender to another. In majority of the cases, you need to have a sound employment history and you need to provide evidence that your income is enough to make repayments.

Thanks to adamsmith for this guest post.

Here’s a very useful tool that anyone can use to keep track of their debts and keep track of each payment period, snowball amounts, and time left to eliminate all debt. You can even choose a payment policy to pay either the lowest balances first, highest interest first, or define your own custom order. Download this tool from Vertex42.

According to Wikipedia:

The debt-snowball method of debt repayment is a form of debt management that is most often applied to repaying revolving credit — such as credit cards. Under the method, extra cash is dedicated to paying debts with the smallest amount owed.

Methodology

1. Write down all the debt you owe, be it revolving credit or personal loans
2. Don’t forget to write down the balance owed and effective annual interest rate (EAR)
3. Always pay the minimum amounts due for all debts
4. Set a maximum amount of cash you can devote to service debt every month
5. After paying all the minimum amounts, determine how much money is left over
6. Use the extra money to pay off the account with the lowest balance account first
7. Another method is to pay off the account with the highest interest (EAR) first but for some people, seeing accounts being paid off is more motivating (technically, you save more money paying off high interest accounts first)
8. Once the account has been completely paid off, use the extra money used to pay that account and its old minimum payment to pay off the next highest balance or highest interest account
9. Rinse and repeat until all debts have been eliminated

In my case for example, I had the following debt with the following interest rates:

• TD Student Line of Credit – ($8,000) @ 8.00% variable
• OSAP Student Loan – ($12,000) @ 6.50% variable
• TD Secured Auto Loan – ($16,000) @5.65% fixed
• Citi Mastercard - ($9,000) @ 18.50% fixed

Now I chose to attack the highest interest account first so I paid all the minimum amounts due and funneled all the extra money to paying off the Mastercard. The Mastercard account has now been completely paid off and theoretically, all the extra money + the Mastercard minimum payment should now be applied against the TD Student Line of Credit at 8.00%.  Rinse and repeat until all debts have been paid off. This method is very simple and extremely motivating as you can keep track of closing each account as a milestone towards a debt-free life.

First and foremost, The Money Monkey welcomes you. I’d like to use this first post to give my readers a snapshot of my financial position last year when I finally graduated and received my undergraduate degree, so you all can see my undocumented progress from back then to where I am today.

School is expensive. However, I was very fortunate to have attended the University of Waterloo because of their internship or co-op program. What that meant was I was able to secure placements and earn money during co-op terms to supplement the high costs of living away from home, tuition fees, and other school related miscellaneous. At the same time, I earned invaluable work experience that I was able to leverage and add to my resume to secure a job right after graduation. Now enough of the school talk as it makes some people miserable. Show me the finances!

Okay, now it’s not as bad as some people may have exiting university in terms of debt load but I exited school with more than $45,000 in debt. Let me outline where that $45,000 in debt came from, as it’s not all related to school. Here are rounded approximations:

• TD Student Line of Credit – ($8,000)
• OSAP Student Loan – ($12,000)
• TD Secured Auto Loan – ($16,000)
• Citi Mastercard - ($9,000)

That’s a whole lot of money! A lot of it is also what we  consider “bad debt”. Hint: It’s the one that starts with an “M” and ends with “astercard”. So that’s the whole picture. Now I realized after school and getting my first job that I feel restricted – almost trapped – by this almost unsurmountable amount of debt. In my next post, I will detail my action plan to get rid of it and start building positive net worth. Now I’m not even at $0 net worth yet, but I’m getting there. I’m actually reaching my next milestone in less than two months so that is definitely something to look forward to.