If buying a home is the American Dream, taking out a mortgage or a double mortgage can easily turn into an American Nightmare. In fact, the word mortgage itself is derived from a French-Anglo term meaning "dead."
Here's another curious fact. Americans often first own their homes half a century after buying it. Home mortgage lenders are major players in the entire mortgage process. Some, such as Fannie Mae, have helped millions of families of all tax brackets, to secure their own homes. The logistics of mortgages are complex, with refinancing being a vital spoke in the wheel.
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What Is Financing?
We can better understand what a review is, if we first learn what a view is. Likewise, it is easier to grasp what refinancing is by first tackling what financing is. Simply put, financing is dedicating money for purchases, investments, or business actions. And when people and businesses are financed, their chance of achieving success greatly increases.
What Is Refinancing?
This process grants new financing. Imagine a man named Mr. Big took out a mortgage on his house. He later gets a new mortgage from a home mortgage lender named Marty's Mortgage. The second mortgage's interest rate is lower than the first mortgage's, giving Mr. Big the means to pay off the first mortgage.
What Are the Benefits of Refinancing?
Refinancing has several advantages, depending upon who makes use of it. Among these are:
o Payment of other expenses:
Consider the home mortgage lender who provides a homeowner with refinancing. He offers a mortgage with a lower rate than that of the original mortgage's. The surplus of funds could be used to remodel a house or pay back a car loan in full.
o Potential tax write-offs:
Suppose your second mortgage from a home mortgage lender was equal to the current value of your home. Based on the Internal Revenue's Service, you've actually taken out a pair of new mortgages. Home Acquisition Debt is simply the first mortgage that you paid off. On the other hand, Home Equity Debt can be calculated by subtracting the first mortgage from the second mortgage. Interest from this amount can also be subtracted from the amount of federal income taxes.
Drawbacks of Mortgage Refinancing
Refinancing might sound like the greatest thing since indoor plumbing, but it is not exactly a walk in the park. It also has disadvantages, namely:
o Tax returns:
If your new mortgage loan requires mortgage points, then the full amount cannot be reduced from the current year's tax return. A mortgage point equals one percent of the loan.
o Fees and paperwork:
Refinancing requires much paperwork and payment of several fees. Depending on which type of loan you took out previously, fees such as closing costs would be required for refinancing. However, it may be worthwhile to pay the fees, in certain cases. For instance, one could argue that the fees are justified if refinancing results in payments that are drastically lower.
Credit Ratings and Mortgage Refinancing
One's credit rating is a rough calculation of how much credit one can obtain, without putting the home mortgage lender at undue risk. Before providing potential customers with mortgage refinancing, home mortgage lenders first assess their credit reports. Equifax, Experian, and Trans Union are the most prominent agencies that create credit reports. Usually, home mortgage lenders review one credit report that combines the three agencies' individual reports.
For many people, the stack of bricks that form their homes represents the American Dream. Under the proper circumstances, refinancing could help this dream come true.
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