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Debt and Mortgages

The financial and banking industries have come under serious scrutiny in the past few years, and because of this many potential borrowers are now well-aware of some of the less desirable "products" in the lending industry. If, however, someone has fallen prey to a mercenary credit card company or a lender who has raised their interest rates to an unbelievable and almost unpayable level, there are still some solutions to the trouble. One thing most people can do is tap into the equity of their home to solve their credit or debt problems. How can they do this? Well, there are three popular approaches to this issue:

  • Refinancing - currently millions of mortgage holders are able to get access to some of the best interest rates in years. A refinancing can be done by anyone who is "current" in their mortgage payments and who is not seeking unrealistic terms. For example, someone who is refinancing to lower their monthly payments will probably face very little resistance from their lender.

    The only roadblocks such a mortgage holder might face will result from the value of their home having declined to the point that the mortgage amount needed is much higher than the home's value. Luckily, there are now government backed programs that will help many such homeowners to successfully refinance and lower their payments.

    How can refinancing lower payments? If someone has a 20 year mortgage at 8%, they could refinance it as a 30 year mortgage at 5.5% and see their monthly payment drop significantly.

    Additionally, many homeowners are refinancing to the full value of their home in order to use the cash from closing to pay off higher interest credit cards. This is a good way of putting money back into your pocket and keeping monthly expenses at a safe and manageable level.
  • Equity Loans - If a homeowner does not want to create an entirely new mortgage on their home, they can create a "second mortgage" product such as an equity loan. This makes a percentage of the home's equity available in the form of a lump sum loan. For example, if a home has $60,000 in equity, many banks would make that full sum available to the borrower who would then repay this according to the terms agreed upon. Many people use an equity loan to perform a major repair or fund a major expense. The good thing is that if the money is used for the home, the interest can be a tax deduction.
  • Equity Lines of Credit - these are based on the same principle as the equity loans, but provide the money in an account that can be accessed or "drawn" for a certain period of time. When that draw period ends, the repayment period begins.