The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes it harder and more expensive to file for bankruptcy. Under this Act, credit card companies are now charging double for minimum payments and exorbitant universal default rates for missed payments. As a result, people are doing debt consolidation with home equity loans and mortgage refinancing by the droves.
But, what about people who have good rates for their existing mortgages? Interest rates are rising, and if you bought your house before the interest rates started rising, you may still need a bill consolidation solution, but a mortgage refinance doesn't make good financial sense. However, refinancing revolving debt with a home equity loan might. You may qualify for a 100% home equity loan. Then, you can use your home equity to refinance high rate credit cards, lowering monthly payments, so you can enjoy lowered interest and more money in your pocket.
100% home equity loans are generally tax deductible up to 100% of the value of your home. Your credit scores can rise due to lowered non-mortgage debt which, according to myFICO.com (a division of Fair Isaac), accounts for 30% of the weighted factors in your FICO scores. While there are adjustable rate and balloon payment loans available, it's best to get a fixed rate loan, so the monthly payments never change.
How do I qualify?
General qualification requirements are as follows. There may be additional requirements.
o A minimum middle FICO score of 600 for documented income loans, and a minimum middle score of 640 for stated income loans.
o Typically, six months seasoning to get a new appraised value.
o No bankruptcies and foreclosures in the last 2 years.
o Appraisal required for amounts above $35,000.
For greater savings:
o Find a lender that doesn't charge an application fee upfront.
o Consider the annual percentage rate (APR). This reflects the total cost of a loan by taking into consideration the interest rate plus any points and fees paid.
o Don't have your credit run until you've narrowed your choice to 2-3 lenders. Once you have your 2-3 lenders, compare loan disclosures before making your final choice. Loan disclosures include a good faith estimate of every expense associated with your home loan.
Making these comparisons will help you determine which mortgage broker is offering you a loan that saves you the most money each month.
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