Making Money Work For You Volume 1, Article II – Loans

I think it’s time to talk money again. You must already know me when it comes to making my money work for me. I have written about this before and it is filed under Making Money Work For You category.

When I purchased my home back in 2000, the interest rates were not as low as it has been in the past few years. I believe my interest rate back then was 8.1% which if considered today – it would be ridiculously high. No one would touch an 8.1% home loan today.

After a couple of years, the interest rates have gone down considerably and I had high balance credit cards that carried an interest rate as high as 16%. I considered refinancing my home to a 15 year mortgage and since the equity of my home has considerably increased, and there was no sense for me to continue paying my credit card at such crazy interest rates when I can refinance my home. I was able to refinance my home plus an additional cash out to pay off high interest credit cards and incorporate them into my home loan and be able to pay down my loan faster than the original 30-year home loan that I originally took out. What was the benefit?

These are the benefits of a home ownership and refinancing:

Homeowner:

You get the benefit of deducting your expenses at the end of every year including the amount you paid in interest and taxes, making your taxable income lower. And it doesn’t stop there – when your taxable income is lower, you are taxed at a lower income bracket that would provide extra savings in your pocket every tax season. The extra cash you take out may be used to pay off large credit card debt with high interest, pay for your child’s education, or complete a home improvement project such as upgrading your kitchen or replacing your roof.

Refinancing:

Simply put, refinancing means paying off your old mortgage with a new one. Most lenders require that you have 10% equity in your home before you refinance.

There are many reasons to refinance your mortgage. First, interest rates may be lower than when you first got your mortgage. If the rate is below 7%, or is 2 percentage points below your current rate, it might be time to “refi.” If you took out an ARM in the past two years or so, you’re probably paying 7.75% to 8.5%. By switching to a fixed-rate loan today, you will not only reduce your payment, you will also lock in an attractive rate for as long as you own your home.”

By refinancing, you can pay off any high interest credit cards and incorporate your debt to your home mortgage. Although you will be paying interest, it will be considerably lower than that of any credit card you have and the interest will be tax-deductible. Credit card companies have become blood-hungry nowadays that some even charge interest as high as 35%!!! You will never be able to pay that off in this life time.

If you cannot be approved for an unsecured loan, you may want to try applying for a secured loan. Because a secured loan is secured on property, most lenders will approve your loan even if you have a history of adverse credit such as county court judgements (C.C.J’s), defaults and arrears. This make secured loans very attractive to people who would otherwise not qualify for a loan from their local bank.

You do not have to own your own home outright to be able to take out a secured home loan; if you have a mortgage you can put the proportion of the home that you own up as security.

The interest rate for a secured loan depends upon various factors such as the amount of money you borrow, the length of time and personal details. You can also insure your payments for peace of mind, so you do not have to worry if you lose your job or are unable to work because of accident or sickness.

Benefits of a secured loan:

a) It has lower monthly repayments than an unsecured loan.
b) Ability to borrow money to pay off high-interest credit cards.
c) Ability to spread repayments over a long period of time.

If you are currently in a bind and you have equity on your home, you might want to take the opportunity now before interest rates start rising back up again. However, before you make the move, as they always say, “Think with your head, not over it!”

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