Home loan modifications are not for most with debt
Someone who has non-mortgage debt should in general avoid home loan modifications like refinancing. This is because several months of payments after home loan modifications are complete, even if at favorable terms, are required in order to clear the initial refinancing costs to make it financially worth the while. However, if one has strong income security in spite of outstanding non-mortgage debt and excellent personal discipline, then cashing out a sliver of their home equity to pay down high interest debt may be acceptable. This is qualified advice since a strong correlation between cashing out home equity and getting deeper into non-housing debt has been identified.
If you have an ARM (adjustable rate mortgage)
Refinancing into a fixed-rate mortgage might be a smart move, although you need to make that decision based on your own assessment of financial security, including income security. This is because you need additional tenure in your home, which can be on the order of several years, before home loan modifications become worth the initial cost. The upside to switching into a fixed-rate mortgage is monthly payment certainty compared to variable rate plans, and more certainty means less risk – a major benefit for someone with debt, even if the fixed rate option is at a slightly higher interest rate than the ARM. Also, consider doing a point-roll into the mortgage. In short, look at costs relative to savings to calculate the payback associated with home loan modifications.
If you have 20% or more equity in your home
Paying one-time costs that are either large or unexpected
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
Tags: cashing out home equity, HELOC, home equity loans, home loan modifications, home refinancing, housing and debt, mortgage debt, mortgage refinancing, mortgages and debt, mortgages and debt strategy
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As the article says, refinancing may not be in your best interests to get out of debt. There are other options available to us – http://money.lessonstudio.ca/
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[...] is the original:? Home Loan Modifications: Should You Refinance Your House? Post Date:March 3, 2009, Category:Uncategorized Author: admin, . [...]
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P.S. – Sorry, forgot to tell you great post!
[...] runs through a few what-ifs with home modification loans. Tying consumer debt to your house is not something to be done [...]
Thank you so much for your post! You really hit the nail on the head with this one. With the economy the way it is right now with all the layoffs and more to come; government spending and deficit out of control; the continued housing slump; one wonders where to turn for help. It sure is nice to know that there are debt management companies out there that can help folks avoid bankruptcy and still keep their heads above water. Thanks so much for the taking the time to post this information
Interesting article. Thanks for sharing.
I firmly believe there is no single blanket solution for every case, but the more accurate information people have, coupled with an understanding of the options available, can lead to improved financial health.
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Nice site! Thanks for the great post
Loan modification companies beware. Nice post and I want all to know the government is on the hunt for loan mod companies.
With the economy the way it is right now with all the layoffs and more to come; government spending and deficit out of control; the continued housing slump; one wonders where to turn for help. It sure is nice to know that there are debt management companies out there that can help folks avoid bankruptcy and still keep their heads above water.
I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.
Great information about the economy, I enjoy your blog and look forward to more information.
[...] does this mean that someone with debt, and specifically non-mortgage debt, should refinance? The answer depends on a variety of factors, but in general, no. Blumenthal mentions two crucial [...]
I think you are supposed to give it a try or consideration if you are way behind on debt. Otherwise, if you can afford your payment do it.