Refinancing

Refinancing is when you apply for a secured loan in order to pay off another different loan secured against the same assets, property etc. If this original loan had a fixed interest rate mortgage which has now declined considerably, then you would like to avail of a new loan at a more favorable interest rate.

When is Refinancing an Option

Typically home refinancing is done when you have a mortgage on your home and apply for a second loan to pay off the first one. While taking the decision to go for the home refinancing option, it is important to first determine whether the amount you save on interests balances the amount of fees payable during refinancing.

Benefits of Home Refinancing

Imagine a scenario where you can have access to extra cash, while simultaneously lowering your monthly mortgage payment. This dream can become a reality through mortgage refinancing.

A house is the largest asset you may ever own. Likewise, your mortgage payment may be the largest expense you'll have in your monthly budget. Wouldn't it be great to use this asset to reduce your monthly payment and put extra cash in your pocket? When you refinance your mortgage, you can take advantage of the equity in your home and enable this to take place.

Lower Refinance Rate, Lower Payments

When you purchased your dream home, the financial environment dictated interest rates. While certain factors, like your credit rating and the amount of the down payment that you were able to afford, influenced your interest rate, the single most important factor was the prevailing rates at that moment. However, interest rates fluctuate. When the Federal Reserve enters a rate-cutting period, the prevailing rates may become significantly lower than when you originally purchased your home.

By refinancing your mortgage when interest rates are lower, you can exchange a higher interest rate for a lower one, which, in turn, will lower your monthly payment.

Shorten the Length of Your Mortgage when Refinancing

Another advantage of home refinancing is that you can shorten the term of your mortgage. Let's say, for example, that you originally had a 30-year mortgage and have been paying it for eight years. Thanks to mortgage refinancing, you can switch to a shorter term of either 10, 15 or 20 years. This can save you thousands of dollars of interest. Also, if the refinance rate is lower, but you maintain the same monthly payment, you will build up equity in your home more quickly, because more of your payment will be going towards principal.

Exchange an Adjustable Rate for a Fixed Refinance Rate

When interest rates are low,adjustable rate mortgages (ARMs) are the housing market's darlings. However, as interest rates increase, that adjustable rate may not look as sweet. It's also possible that you opted for an ARM because your financial future was less secure, or you weren't sure how long you'd stay in your home. If, however, you've become financially stable and know that you'll be staying in your home for several years, it may be beneficial to swap that fluctuating adjustable rate for a fixed one. You'll have more security knowing that your monthly payment will remain steady, regardless of the current market environment.

Access to Extra Cash - Cash-out refinancing

One way to put more money in your pocket is to tap into the equity you've built in your home and do a "cash-out" refinancing. In this scenario, you can refinance for an amount higher than your current principal balance and take the extra funds as cash. This can provide money for remodeling your home, paying off high-interest rate bills, or sending your kids to college.

Bye, Bye PMI

If you were unable to make a down payment of 20 percent when you purchased your home, you may have been required to purchase Private Mortgage Insurance (PMI). If your house has appreciated since then, and you've steadily paid down your mortgage, your equity may now be more than 20 percent. If you refinance, you will no longer need PMI.

In many ways, your house is like a cash cow. If you have discipline and knowledge of the benefits of refinancing, you can tap into its milk for years to come.

Debt consolidation

Debt consolidation involves taking high-interest balances on a multitude of credit card bills and combining them into a single balance. It can involve a variety of different options, including debt consolidation loans, transferring balances to a zero percent credit card, or a home equity loan or home equity line of credit. Interestingly enough, however, some experts say individuals who take out a home equity loan to pay off credit card debt accumulate similar debt in a two-year period.

The reason for this is simple, accumulating debt is a habit and it is an exceedingly tough habit to break. If your tendency is to overspend, chances are you will continue to do so, even after you've taken out a home equity loan. In addition, if you need debt consolidation, it is likely that you will not qualify for the lowest possible interest rates. Those are reserved for people with the best credit ratings.

Debt Consolidation - What Are The Options?
Having a lot of debt is not uncommon today, and for many, it seems that knowing how to get
out of debt is just about as uncommon, too. If you have a lot of debt and want to find some
relief, there are a number of options that may be available to you.

Still, if you are determined to undergo debt consolidation, there are a few key things you need to know. To begin with, a home equity loan is a fast, simple way to dig yourself out of debt. However, if you have difficulty paying the loan back, you could end up losing your house. In addition, although interest on home equity loans is generally tax deductible, such a tax break could be limited. You may also be tempted to borrow more than you need just because the bank says that you can.

Another possible option is a zero-percent credit card, but you need to be careful about using it. For instance, the zero-percent interest rate may just be an incentive for you to switch cards. At the end of a certain period of time, say 12 months, you'll be back to paying sky-high interest rates. Also, you will only be able to hang onto the low introductory rate as long as you pay your bill on time. If you're late with a single payment, you'll end up paying a much higher interest rate. Additional fees and charges may cause the cost of the credit to soar. In addition, if you end up paying the bare minimum on your credit cards, it will be difficult for you to pay them off any time soon.

What about the conventional debt consolidation loan?
Such a loan can be quite convenient and a real time-saver, enabling you to pay your debt with one single payment each month. You may find that you can get the best rate at a local credit union rather than at a bank. By doing some comparison shopping, you may be able to save quite a bit of money in the long run.

What is a credit card?(part 2)

A diagram showing the front side of a typical credit/debit card.

• (1) is the bank logo.
• (2) is the EMV chip (commonly referred to as 'Chip And Pin')
• (3) is the Hologram
• (4) is the 16 digit card number
• (5) is the logo of the card type
• (6) is the expiry date
• (7) is the name of the cardholder

What is a credit card?

The plastic credit card with a magnetic strip many people carry in their wallets or purses is the end result of a complex banking process. Holders of a valid credit card have the authorization to purchase goods and services up to a predetermined amount, called a credit limit. The vendor receives essential credit card information from the cardholder, the bank issuing the card actually reimburses the vendor, and eventually the cardholder repays the bank through regular monthly payments. If the entire balance is not paid in full, the credit card issuer can legally charge interest fees on the unpaid portion.

Individual banking institutions have their own policies when it comes to credit card applications. Customers may seek either a secured or unsecured credit card, depending on their individual repayment histories. A secured credit card requires the applicant to deposit an amount of cash equivalent to the credit limit desired. A deposit of $1500 USD, for example, should be enough to be issued a credit card with a $1000 to $1500 spending limit. If the customer fails to make sufficient payments, the deposited money will be used to satisfy the credit card debt.

An unsecured credit card, on the other hand, is generally issued to those who have a good and have demonstrated an ability to repay the accrued debt on time. Credit limits are determined on an individual basis, and may be raised or lowered based on performance. An unsecured credit card is essentially a pre-approved loan, with higher than a similar personal bank loan. The main benefit of any credit card is instant access to more cash than you may have on hand. A recent college graduate, for example, may have to purchase a business suit for employment purposes. Earning the $200+ USD needed for an average suit could take weeks, and he or she needs the suit in order to earn the income. Putting the suit on a credit card would be the ideal solution; the borrower could repay the balance with his or her first paycheck and few interest charges would accrue.

Credit card use often becomes problematic when the holder accrues more debt than a regular monthly payment can cover. The issuing bank does allow credit card users to carry over balances every month (revolving credit), but significant interest rates may also accrue on those balances. Missing a scheduled payment can also prompt the bank to raise interest rates on a delinquent account. If a credit card holder can only afford to pay the minimal amount due every month, he or she will not be reducing the actual debt incurred. The minimal payments may only apply to the accrued interest. This is a financial spiral many credit card users may experience if they don't use proper spending restraint.

A credit card does give the holder an immediate credibility for services such as hotel reservations, car rentals and airline ticket reservations. Those without a credit card often have to guarantee their reservations with cash deposits or several forms of identification. Many credit card plans also include insurance coverage for theft fraud . If a credit card is reported stolen and then used illegally, the cardholder would not be held responsible for unauthorized charges. A credit card holder can authorize other people to use the card for purchases or services, however. Ultimately, the primary cardholder is responsible for all charges placed on his or her account.

A credit card is not a requirement for successful living, but even those who only pay for goods or services with available cash often find a credit card to be a convenient form of identification and instant credibility. In order to avoid excessive credit card debt, the holder must decide if the goods or services are worth the added expenses.