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Loan Refinance

Loan refinance involves paying off the existing first mortgage, or, a first mortgage and the second mortgage. The main reason behind raising the loan refinance is that the prevailing rate of interest is much lower than the interest rate that was agreed upon the first mortgage. The lower rate of interest means lower monthly repayments. You can also get “cash out” of the property. Loan refinance may result in huge savings over a period of time. For example, your present rate of interest is 7.5% and the prime rate interest rate is 6%. The savings with the difference of 1.5% over the life of your credit can total up to thousands of dollars. Quite obviously loan refinance helps you pull out the dollars lying stashed under the mattress and utilize them productively.

You may also reschedule your payment terms. The savings so accrued may be invested in more pressing areas such as making renovation or additions to the house to enhance its market value with no out-of-pocket expenses.

The second mortgage loan may be financed using home equity as collateral. In case of the home equity loan finance, the borrowers receive their total loan amount upfront and repay it off over an agreed span of time. Borrowers with good credit history can avail of credit limit of 75-80% of their equity and pay back in fixed monthly installments.

If you already have a low rate of interest or are about to pay off your loan, a Home Equity Line of Credit is the best course you can take. A Home Equity Line of Credit features double benefit to the borrowers in form of tax savings and lower rates of interest. This is like a credit card loan with the benefit of much lower rate of interest than on the credit card loan. You can draw upon the credit as and when you need and pay interest only on the amount drawn for the first 10 years and after that you amortize the loan. Another advantage is that the interest paid on these loans may be tax-deductible implying thereby that you will receive extra tax benefits for the closing costs which you have to pay even if you are bankrupt. You can, thus, reduce the pay off period and close fast with minimal fees. Moreover you can pay off the unsecured and personal loans at a much reduced rate of interest.

With all the benefits of loan refinance, the question arises how to find the right finance company or brokers. It is always advisable to shop around extensively considering your financial position, personal requirements and temperament. While some persons wish to do away with the hassles of loan repayment as soon as possible, there are others who convert the loan refinance into a profitable business opportunity. Seek the referrals of your friends and relatives. Browse through the Internet since the risks involved are pretty high.

Once you have settled upon a lender, the next step is to start the documentation for loan refinance. You will have to produce documents to show certain basic information about you. The first and the main document should provide a proof of your identity and income. The second document is the cover page of the homeowner’s insurance policy to reveal the breakdown of your insurance coverage. You may have to produce documents showing your past employment, income and credit history. Other documents may pertain to your assets, insurance, savings, investments, ownership title on your property.

The next step would be to ask your current mortgage holder to provide you with a statement showing how much loan you have paid off and how much remains to be paid at the time of seeking loan refinance. You will be required to sign several documents, which may vary with the lenders.