When you’ve accumulated a mountain of debt and are not able to pay on time, it definitely lowers your credit score. It also causes you to pay higher interest rates , and worse may affect your ability to get employment or other types of loans.

If you’re worried that you’re paying too much for your home loan or if you think you’ve fallen into mortgage repayment arrears, you might want to take a look at Refinancing. For credit crisis help, some people turn to Refinancing. Most people don’t know that it could actually help you get out of the hole and turn your financial situation around. What is Refinancing? Refinancing refers to the replacement of an existing debt obligation with another debt obligation bearning different terms. In other words, it simply means restructuring your loans to reduce interest costs as the main purpose.

With interest rates dropping to its lowest in 50 years, most of us have at least thought of Refinancing. Some are even thinking the rate could go as low as 4.5%. If you’re looking at 3% potential savings, it makes sense to consider the option of refinancing.

Do you have 2-year tax returns? or 3-year pay stubs? A late payment in the last 12 months? Is it an upside down loan? If your answer is yes, then you’re not qualified for refinancing. To get the best rates, you have to qualify and if you have blemished credits, you may want to improve your credit standing first. You could check with your bank or credit union whether refinancing will benefit you and get you pre-qualified.

Let’s say you’re qualified and you’ve shopped around for brokers, the second question would be; “Will refinancing actually save me money?” If your loan carries a large prepayment penalty (paying off your current loan early), refinancing is not a sound idea. For example, in a home loan, typically, prepayment penalties can apply in the first 3 years and can be as much as 6 months worth of interest on the original amount. So, if you’re refinancing, make sure that you would at least be in your home long enough for the savings to outweigh the costs.

In additon, high refinancing fees are unavoidable. There are closing and transaction fees that are typically associated with refinancing debt, charges for changing the name of your lender to your home or car’s title and other possible hidden charges or fees depending on which country or state you are living. Make sure that you understand all the terms and conditions when you enter into refinancing. Take time to learn and ask a lot of questions. Get the necessary facts and ensure that the refinance advice is financially manageable for you.

Calculating the upfront, ongoing and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance. If a fresh loan has more suitable terms and lower interest rates, then you will be able to handle your monthly payments regularly until you pay off the total amount and improve your credit score.

read more...