Refinancing Your Mortgage

Refinancing Your Mortgage

A mortgage is the largest debt most of us will ever enter into and when you’re months behind in payments, either from medical bills, layoffs or other unforeseen difficulties, you can quickly descend into an abyss of misery. A Chapter 13 bankruptcy filed with Detroit bankruptcy lawyers can erase this mortgage debt, but cannot always lift the lien your mortgage company has probably filed early in your arrearages. So, before you decide to file for bankruptcy and while your credit standing will allow, refinancing your home may alleviate your financial situation.

Your home is the collateral for your mortgage. And, if you’re not under water with your mortgage, you probably have some equity in your home. This can make you eligible for a refinance, even if you have other outstanding debt. Refinancing can lower your payments by lowering your interest rate. And, you may get some cash out of the deal that you can apply toward other debt. An extra bonus is that with a refinance, all of your payments for the first few years will go toward interest, netting you a tidy deduction on your income taxes.

However, there can be drawbacks to refinancing while you are in a tight credit situation. In the tight credit market of today, unscrupulous character abound. Here are some “dos” offered by Detroit bankruptcy lawyers:

Compare all the costs of refinancing with the costs of your present mortgage. There are costs to consider other than the interest rate you presently pay. The federal Truth in Lending laws require that lenders give you documentation on your current annual interest rate, the amount financed, the total cost of financing, and any other fees incurred. You may find that the deal you have is better than the deal being offered. Look for a new loan with a shorter repayment time in addition to lower interest. Don’t let the interest rate be the sole selling point. The lower interest rate should also cover the additional costs that will be associated with a refinance.

And, some “don’ts” from Detroit bankruptcy lawyers:

Don’t fall for unsolicited offers that come in the mail. These miraculous solutions may include ridiculously low interest rates, buy bank offers (we’ll buy your home and then you buy it back from us), or offers to consolidate all your loans into one (including your mortgage). The old adage applies here, – if it sounds too good to be true, it probably is. Don’t refinance your home with a finance company. Finance companies’ interest rates will almost always be hirer than banks’ because they have higher default rates. Plus, finance companies can charge additional fees, insurance and other charges banks do not. While the benefit of refinancing can vary between individual situations, refinancing your home before you are deep in credit woes is the key to taking a step out of the credit morass.

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