Are You Just Holding On Financially?

Mortgage refinancing is sometimes a last-ditch effort to prevent foreclosure. With rising fuel prices, tough times in the job market, and the ever-increasing price of health care and other essentials, the average family is feeling the pinch. For many, it is still a viable option to look at mortgage refinancing.

If your month seems to have outgrown your money, there are a number of things you can try before taking the step of refinancing your mortgage. Cut back on as many of the "little things" as you possibly can.

Disconnect the cable TV, cancel the newspaper and magazine subscriptions, check your credit card statements for small regular deductions you may have forgotten that you authorized, and especially keep a close eye out for insurance companies which have cancelled your policy in the past, but keep deducting the premiums even though they have no intention of ever paying should you make a claim.

Weather-proof your home to reduce heating and cooling costs. Fill those cracks, clean out the gutters, make use of blinds and curtains, and consider planting or pruning trees to provide shade and sun in the right places to help your home balance its temperature.

Audit your driving habits and weekly routine - now is the time to start changing our patterns to reduce gas consumption! Not only will you save money, you can feel virtuous about helping to reduce greenhouse gases and save the planet from global warming.

Once you have pulled together all the savings you can possibly identify, and your month still stretches beyond your money, then mortgage refinancing may be the next step.

If your home has gone up in value since you bought it, if interest rates have fallen, or if you have paid off a reasonable portion of your mortgage though having made payments regularly for many years, then refinancing may be a way to gain some much-needed breathing space each month.

Mortgage refinancing can also provide a cash lump sum in some cases - if you apply this to paying off credit cards and other high-interest loans, you can gain a surprising amount of wiggle room. Just make sure you don't run up the cards again, because mortgage refinancing may not be an option a second time!

Refinancing? Don't become shark bait.

Refinancing has many benefits. If interest rates have fallen, or if you have significantly reduced your balance owing, then refinancing can result in a lower monthly mortgage payment. You can also use refinancing to release the equity in your property in the form of cash or a home equity line of credit.

However, like all financial transations, or indeed any commercial dealings, refinancing is a case of caveat emptor - buyer beware. The benefits of refinancing can be wiped out if you don't read the fine print and understand exactly what is happening with your new mortgage.

First, check that your current mortgage doesn't have any exit or early payment penalties. Sometimes, these fees can completely outweigh the benefits you might otherwise get from refinancing.

Of course, some would say you should have read the fine print last time and chosen a mortgage with no early payment penalties, but there is no use in crying over spilt milk. If you find there are nasty surprises in your current mortgage terms and conditions, just crunch the numbers and decide whetehr it is still worth going ahead with the refinancing.

Even if there is very little financial advantage in refinancing, there is still a benefit in going ahead. Your new mortgage won't have such penalties, because you now know to look for them. It may be worth refinancing for very little financial gain, or even at a slight cost, just to get out of that draconian mortgage you unknowingly signed for in the past.

Watch for hidden costs. These are incredibly common. Application fees, valuation fees, broker commissions, inspection fees, title transfer fees, legal fees, stamp duties, registration fees, account closing fees, account opening fees, mortgage discharge fees, administration charges, copying charges, even costs for making telephone calls! Make sure you hve a complete list of all the costs before you begin the process, so there are no surprises.

Read and understand the terms of your mortgage. The standard mortgage has fixed monthly payments for thirty years, but don't assume you are being offered a standard mortgage. Read it and find out exactly what the terms are.

Adjustible or variable mortgage rates mean that your interest rate will go up and down over time. Since interest rates are at hisotically low levels just now, this can only be bad for you, and you definitely want a fixed rate.

Some lenders have made the payments seem lower by not requiring the borrower to pay all of each monthly payment. The catch is that what you don't pay gets added to the balance on your mortgage. So instead of paying off your mortgage by a small amount each month, your mortgage is actually getting larger each month.

To make these mortgages even more frightening, after a few years, typically five years, you have to start paying the full monthly payment anyway. By then, the mortgage has often blown out to more than the house is worth, and the homeowner is trapped.

Make sure you are being offered a nice, normal, standard, fixed interest mortgage where the payments are the same every year for thirty years.

Refinancing is a great solution to a range of financial problems, and done correctly it can be a way to get ahead on the steps to financial freedom. Don't be bitten by the sharks - do your homework and be sure you are getting a good refinancing deal.

Read Suze Orman's 9 Steps To Financial Freedom at the Emergency Refinancing website.

Photos by miusam-ck and egarc2.