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Refinancing could help reconfigure mortgage debt

Owning a home has long been known as the ultimate American dream, and is a goal to which many people still aspire. However, when circumstances shift, many Washington residents find that retaining their home is a challenge. Faced with mounting bills and decreased income, mortgage debt is a stressor that can begin to feel overwhelming. Fortunately, there are ways to overcome crushing levels of debt, including refinancing a home loan.

Before making the decision to refinance, it is important to take a close look at the terms of the new loan. Doing so can help avoid a negative outcome, up to and including the eventual loss of the property to foreclosure. First and foremost is the interest rate, and whether the new rate is significantly lower than the current one. Be sure to run the numbers to see the actual difference in monthly payment that corresponds with a lower rate before making any decisions.

In addition, consumers must also consider their current equity in their home, as well as their current credit scores. In order for refinancing to have a measurable impact, good terms have to be acquired. If an applicant looks like a poor credit risk, he or she is unlikely to receive the best possible interest rate. Those who do not have at least 20 percent equity in their homes could be required to pay private mortgage insurance, which will increase the cost of refinancing.

Finally, consider the type of mortgages currently on offer. For consumers who currently have an adjustable rate mortgage, a fixed rate option may be a better fit. Some homeowners signed up for a 15-year mortgage, only to find that the higher monthly payments are too much for their budget. Refinancing to a 30-year loan would make more sense when it comes to balancing the monthly budget, even though the total cost of the home would be higher.  

Refinancing is often a great way to redistribute mortgage debt, and bring about a degree of financial breathing room. However, in many cases, a Washington homeowner has already encountered a great deal of financial strain by the time he or she begins to consider refinancing. That could result in an inability to secure favorable refinance terms. In such circumstances, another way to regain stability is through a Chapter 13 bankruptcy filing.

Source:, "6 Steps to Check Before Refinancing Your Mortgage", Selena Maranjian, March 9, 2017

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