Categories
Home Loans

What Happens When You Default On Home Equity Loans?

If the value of your home, or the amount you paid for it, is higher than your first mortgage or the principal, it means that you have equity in your home. You can tap into your equity by applying for a loan, secured by it. These can be a great option to acquire finance, but what happens if you default on home equity loans?

Here are the consequences if you default on home equity loans

1.The account will be sold to a collection company.

Unlike what other people think, foreclosure is usually not the course of action home lenders choose to recover the amount you owe. When you default on your debt, your lender may sell it to a collection company who will take it from there. They will call you, send collectors to your door steps or send demand letters to attempt to recover your outstanding balance.

standard-lawsuit2. Standard lawsuit

If the second mortgage holder decides not to foreclose, can it still recover the money it has lent you? Yes. In an attempt to recover payments, the lender may file a standard suit against you. It is less scary than a foreclosure where you will lose ownership of your home, but it can seriously hurt your credit score.

3. Foreclosure

In case of default, the holder of your second mortgage may initiate a foreclosure to recover the money it lent to you the moment your house is sold at a foreclosure sale. Since mortgage is a senior lien which takes priority over a home equity like a second mortgage (because the loan was registered earlier) the first lender gets paid first. But, what if you refinanced the loan—does it mean that the second mortgage lender becomes the first priority? It depends. Whichever lender has the certificate of title will be entitled for the payout first. If you were in the process of refinancing but it was never complete before the foreclosure on the property and you didn’t pay the previous lender out, they are not eligible for the funds. If your previous lender still holds the certificate of title, then they are the ones who need to be paid out.

avoid-consequences

Here are tips to avoid the above-mentioned consequences of not paying your home loan on time…

Don’t hide from your creditors.

They will not be so enthusiastic in working with someone who avoids their calls, ignores their letters and refuse to cooperate with their offer to help for a few months. Remember that most mortgage lenders will work with borrowers who are struggling to make payments to encourage payment. So, if you’re missing payments, contact your lender right away. Inform them about your current financial situation and express your willingness to work out a repayment plan suited to your condition. Your lender may modify the terms of your loan, lower or raise the interest rate, increase or decrease the monthly payments, depending on your situation and financial capacity. It can also be a combination of the abovementioned options to make the home loan more affordable.

Explore available options to avoid foreclosure

Are you struggling to make your second mortgage payments? If foreclosure is imminent because of default, check out some of the alternatives to foreclosure that Australian Lending Centre offers:

If you want to consolidate your debts into 1 easy-to-pay, low-rate loan with low monthly repayments, get your finances back into order with a debt consolidation loan. Learn more about home equity loans and the suitable financial solutions available for you by calling 1300 138 188 today!

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Refinance and Refinancing

Differences between Internal and External Refinancing

Without a doubt, refinancing can bring a range of benefits that enable you to repay your house loan on more favourable terms. Nevertheless, although we know the theory, sometimes it can be difficult to pinpoint whether a financial solution is the right one for us. That being said, today we will have a look at the differences between internal and external refinancing, and what each implies.

Essentially, refinancing is an excellent solution as it gives you the chance to fix your loan terms. Also referred to as balance transfer, this procedure implies selecting a mortgage that is excellently suited for your needs, when compared to your existing loan conditions.

Types of Refinancing

You can choose from internal or external refinancing. Internal refinance implies altering the mortgage but staying with the same lender. On the other hand, external refinance involves switching both the mortgage and the lender.

Irrespective of your choice, you should assess a range of elements, to ensure that the loan works for you. Next, we will evaluate the internal and external refinancing issue.

The Differences Between Internal and External Refinancing

According to an Australian Mortgage Council survey from 2014, more than 30 per cent of consumers aren’t satisfied with their existing lenders. Typically, this is caused by poor communication and deficiency of mutual understanding.

Another survey indicates that over 50 per cent reckon that they could get better deals if they switched lenders.

This is where refinancing could help.

helpful-refinance

If your current lender doesn’t comprehend your needs, you could choose another lender with whom you communicate better. In this situation, external refinancing could be your best choice.

Bear in mind that even though lenders aren’t permitted to charge exit fees on home loans, you could still be held liable for early repayment and break fees. Also, to get the most out of your refinancing offer, you should be outspoken regarding your long-term financial goals.

Internal and External Refinancing – the Downsides

No matter how much we discuss internal and external refinancing on the pro side, we must also take a closer look at the disadvantages. When it comes to refinancing, there are a couple of things that every customer should consider before requesting this service.

Firstly, you will need to check the market in order to find the best option for your loan. This can be a tricky thing because if you have little to no knowledge about internal vs. external refinancing, you might end up doing more harm than good to your finances. Ask an expert to see if the offer you found is good for your financial situation.

Another thing you will have to learn is that while a low-interest rate is a great thing, internal or external refinancing can come with a lot of fees and costs that you probably haven’t heard about. You will have to pay an exit fee; you will have to pay for all the documentation used and for the new loan.

Some customers may experience limitations with internal and even external refinancing. Some may have their refinance requests denied based on their financial situation or credit history. All in all, it is not as simple as one would expect.

In fact, if you don’t do the math, you might end up getting a bad deal and going back to the original loan might be near impossible. This is why research is detrimental, and that is why you will need expert advice if you don’t know how these services work.

internal and external refinancing

When Is the Perfect Timing to Refinance?

According to research, more than 30 per cent of Australians aren’t acquainted with their loan’s interest rate. That being said, it is important to inform yourself regarding the amount of interest rate you pay on a monthly basis.

The good news is that, based on RBA Cash Rate, interest rates have diminished by 2.25 per cent since 2012, which is excellent especially if you want to consider refinancing.

Consequently, every few years, it’s best to review your home loan terms. The loan market is competitive. That means brokers offer compelling offers to attract new borrowers.

That being said, when it comes to internal vs. external refinancing, it’s all about selecting an offer that is more competitive than your current one, whether it’s from your existing lender or not.

Extra tip: Ideally, you should discuss this problem with your loan provider, who should indicate the amount of interest you currently pay. Afterwards, you can compare your interest rate with the ones on the market.

Final Thoughts

We hope that our article focusing on internal vs. external refinancing has been helpful. If you’re on the lookout for an attractive refinancing option on your home loan, make sure you visit www.australianlendingcentre.com.au. Our qualified experts are eager to offer you the most convenient offers! You also give you a free consultation for more information regarding this topic and other financial services and products.

Categories
Mortgage

The Reality of Mortgage Repayments

In spite of the loan solution you carefully select, you should comprehend the way in which a loan works, and what it implies. Understanding the reality of mortgage repayments is the first step to making the right decision to fit your financial status.

Understanding Interest

Recently, Australians have benefited from low and attractive interest rates. So, how does this influence your mortgage repayments? Mortgage providers grow or diminish their rates, to mirror the movement exercised by the set cash interest rate. At the moment, interest rates are estimated at around 4.5 per cent, depending on the lender.

Although selecting fixed mortgage repayments over variable ones might seem the right choice, as it protects you from fluctuations, some other aspects should be considered. If you’re locked into a variable home loan, when the cash rate lowers, your interest will also decrease. Even though this is an unmatched advantage, Aussies should know that low rates don’t plan on staying this way forever.

To grasp the way in which this phenomenon influences your mortgage repayments, hear us out. A standard variable rate for a 25-year old loan of $200,000 would have a $1112 monthly payment, with 4.5 per cent interest rate. If this would change with as little as one per cent, it will either rise to $1228 or diminish to $1001.

Also, bear in mind that, over the life span of a loan, fluctuations may reach $100 per month. What we’re trying to say is that you should embrace a repayment plan with the right contingency measures, in the case in which the interest rate spikes.

When the Loan Matures

You should also note that the market conditions are due to change. That is inevitable. In this respect, you should take advantage of whichever opportunity you have to refresh your financial approach. An option might be to discuss with your financial advisor. But, before doing that, there are some solutions for adjusting your mortgage repayments:

  • Refinancing: When the interest rates are low, you can always consider refinancing. That may be a more convenient option. Even though there are exit and entry costs that should be factored in, as a general rule, you’ll recoup those expenses over the life of the loan.
  • Pay ahead: If the interest rates are low and your budget enables you, you should consider getting ahead on your mortgage repayments. If you manage to make a considerable repayment during this time, not only that you will decrease your overall loan balance, but you’ll save a lot on interest rate payments.
  • Fix your loan: If your credit conditions are permissive enough, we advise you to lock in the new low rate.

To conclude, comprehending the market conditions does pay off. When you sign a loan agreement, you should know what it implies, how the market is due to change and how it can affect you.

In spite of your current status, don’t hesitate to refresh your mindset, in the case in which the market alters in your favour. Why shouldn’t you take advantage of it? Nonetheless, bear in mind that you should discuss with your financial advisor before taking the leap.

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Refinance and Refinancing Self Employed

Guide: Refinancing for Self-Employed Aussies

Being self-employed means that you’re going to have to put in a little more effort into finding the right refinancing solution for you. That’s exactly why we’ve put together a self-employed refinancing guide to help you get a clearer picture of what you should pay attention to, how to choose a loan and most importantly, how to find the best option for your needs.

Self-employed borrowers encounter difficulties when they’re looking to refinance their loan. This happens because financial institutions will take a closer look at their income and are sceptical due to not knowing how their business is going to progress.

This refinancing guide will tell you how to start when you’re self-employed.

Talk to a Lender

Finding the right refinancing package relies on how much you earn. According to your income, you’ll know the amount you can borrow and the limit.

Without taking to time to assess the situation, you may end up disappointed, so start slow and talk to a lender that will be able to give you some points on how to proceed and what you should know.

Do the Math

The second part of this refinancing guide is to calculate exactly how much you’ve made in the last couple of years. Two years is usually the amount of time relevant when discussing self-employed people.

Go through your records and place all your receipts in order.

Fill the Paperwork

Get your paperwork in order by gathering financial statements, a notice of assessments and income tax returns. Unfortunately, having a successful business doesn’t get you a free pass on all of these.

Although it’s time-consuming, without the necessary papers, it would be harder to convince a lender that your business is doing well and you can afford to refinance.

Are You Really Self-Employed?

Many people confuse being self-employed with sub-contracting deals or being a contractor. Some lenders might think that as long as you work for others, you might pass as an employee, which could help you skip some steps involved in this refinancing guide.

Be Honest about Your Expenses

A new piece of equipment, a few more employees or a training course might have raised your expenses the last year. Don’t try to hide them from your lender and explain the situation. There’s always a solution, even though it may not be obvious to you just yet.

Adequate Taxable Income

Unfortunately, this is one of the hardest requirements for a self-employed person. Saying and proving that you can afford to refinance a loan are two different things.

An adequate taxable income is a sort of like your green pass when looking into refinancing. Try to get the necessary paperwork to also prove it.

This guide to refinancing for self-employed contains the significant steps that you’ll have to make to refinance your loan when you are self-employed. There are benefits and drawbacks when you work for yourself, but seek professional advice if you’re having doubts about how to proceed.

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Refinance and Refinancing

Refinancing Analysed: Pros and Cons

Refinancing can be a convenient option in many cases, regardless if you are hoping to get a better interest rate or attempting to consolidate your existing debts. However, it can prove to be pretty tricky in the long run, which is why you may want to learn everything about the refinancing pros and cons.

This option may be perfect for one borrower and a disaster to another. This is why you need to do your homework and read the points below before switching to another loan system.

When Refinancing is Beneficial

When it comes to refinancing pros and cons, there are definitely some benefits you can reap by making the switch. Here are the main ones:

  • Getting Access to Equity – You can use the equity you collected in your loan for other things such as investing, renovating, buying a new car or going on a vacation.
  • Getting a Better Rate – You can get a better interest rate by refinancing, which means that your payments will also be lower. This could, in turn, save you a lot of money.
  • Increase Your Mortgage Length – By increasing the length of your payment, you will have a smaller monthly fee. However, you may end up with a higher interest, causing you to pay more in the long run.
  • Decrease Your Mortgage Length – The same can apply in reverse if you reduce the mortgage length. Not only will you get rid of the debt sooner, but you will also pay less in interest than before.
  • Eliminate Fees – You can sometimes get out of paying certain fees by refinancing a loan. If your current loan has built-in fees for additional features that you may no longer need, a refinance may help you get rid of some of these charges.

Refinancing can be a great way to make your payments easier, but you need to be aware of all the refinancing pros and cons before proceeding.

The Drawbacks of Refinancing

Just as there are refinancing pros, there are also particular cons. When checking out refinancing pros and cons, here are the few risks that you need to keep in mind.

  • Lender’s Mortgage Insurance – Whenever you get a loan, you need to pay insurance to the lender. If you change your lender, it means that you may have to pay that insurance again, even if you already paid it before. This may undercut most of the savings you hoped to get with the refinancing.
  • Longer Loan Duration – Refinancing means that you may have to pay for longer than you originally had to. This might put a damper on your plans if you had the intention to move out.
  • Extra fees – You may be required to pay certain exit fees from your own pocket, and these aren’t exactly cheap. Plus, you may be forced to pay even more entry fees upon refinancing.

Refinancing can be a great way to save some money due to its benefits. However, depending on the circumstance, this process may get you paying more than you should have if you are not careful enough. Keep in mind all these refinancing pros and cons before deciding.

Categories
Debt Consolidation

Is Debt Consolidation Still a Viable Solution?

Unfortunately for us, over the last few decades, we’ve been raking in a lot of debt. As we all know, the global economy has not been the best these past few years, and that has left people in uncertain financial situations, including multiple debts. Debt consolidation was offered as a solution and for a long time, it was one of the most sought after loans. Today, however, there are several alternatives to debt consolidation, so is it still the best option?

Informal agreement

A first option that comes as an alternative to debt consolidation is to make an informal agreement with the companies or institutions you owe money to. More often than not, your creditors will be willing to provide assistance in reworking the way you are paying your debt. Remember that it is in their best interest to work with you, and not against you. If you let them know that you are struggling, they may be able to help you by working out a deal.

Mortgage refinancing

There is an option that is very much alike debt consolidation and that is mortgage refinancing. This allows you to refinance your house and consolidate all of your repayments into a single one that may very well end up being lower than the one you had before. This is a good idea even if you are not in debt, but if you are having trouble repaying your mortgage.

Debt agreement

Now, a debt agreement is very much like an informal agreement, except that it’s formal, in that it is legally binding. In theory, this is the better option, since it does offer you some protection that is missing in an informal agreement. The catch is that not everyone is eligible for this kind of option, and not all creditors will be willing to create such an agreement with all their borrowers. Remember that there are also consequences you need to be aware of.

Personal insolvency agreement

A solution that may be extreme, but is actually a good option aside from debt consolidation is to create a personal insolvency agreement. You see, this choice provides you with more control than you would think and it offers you the chance to strike a compromise. This option comes with certain requirements and consequences. Of course, an even more extreme solution is to declare bankruptcy, which effectively eliminates your debt, but your assets will be seized. It will also appear on your credit history for 7 years.

All in all, there are many options you might consider if you find yourself in the situation of having multiple loans that you are struggling to pay off. They have advantages and disadvantages, and you may choose between them according to your personal financial situation. However, debt consolidation remains one of the most popular and most effective solutions, because of how convenient it is from all points of view.