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Exploring Your Legal Options Before Applying for Mortgage Refinance

Posted on in Mortgage

Debt refinancing is quite elementary and often used as a financial equalizing tool. More often than not, consumers experiencing the onset of financial difficulties may turn to mortgage refinancing to ease the burden through lower interest rates, avoid foreclosure or possible bankruptcy.

Mortgage refinancing is a viable solution to rescue your financial future. As long as your new mortgage is similar in size to that of your old mortgage and your credit is still in fairly good standing, you should be able to complete application without any long-term damage to your FICO credit score.

To explore alternative options before choosing a mortgage refinance, it may be in your best interest to consult with an experienced foreclosure or bankruptcy attorney. Before scheduling your consultation, these guidelines may provide insight as to how refinancing may or may not affect your credit score or long-range financial plans.

Calculate Your Total Debt

To obtain a better definition of your financial situation, you first need to determine your debt to income ratio. This also gives a prospective lender an indication of your ability to satisfy the refinance loan terms. To calculate, sum all monthly debt payments and divide by your gross monthly income. This figure represents your debt-to-income ratio percentage.

Credit Inquiries

If you have been busy requesting quotes on a refinance, the lender of choice may notice that you, as a prospective borrower, have been quite busy seeking the best interest rates available. These multiple “hard” inquires could raise a red flag for the prospective lender but may often be considered as only one hard inquiry on your credit report.

Loan Repayment

If part of your financial problem includes not paying your mortgage on time or the total amount scheduled, old habits need to change. If awarded a mortgage refinance, better terms will account for nothing if you continue to pay beyond the due date or less than the full amount. By adhering to the structure of your terms, your credit report will positively reflect your efforts.

Buyer Beware

If you opt to refinance to lower your monthly mortgage amount, you may want to weigh the pros and cons of this action with regard to the length of time you were paying on your original loan. Often, credit scores reflect the length of time a person has established credit, dating back to the first credit account established. If your mortgage loan represents your oldest credit account and it closes due to a refinance, your credit score may dip a few points in the process.

Realizing that you are experiencing the onset of financial difficulty is the first step in the right direction. Although one mortgage refinance may provide relief with little or no damage to your credit score, keep in mind that continually seeking refinancing options can result in serious financial and credit damage. Refinancing, although relatively popular and readily available, may not always be the best long-term solution to deter possible foreclosure or future bankruptcy.

The experienced Waukegan bankruptcy attorneys of Newland & Newland, LLP are available to discuss alternative solutions to avoid what may appear to be a quick fix to your financial situation. For over 20 years, Stephen S. and Gary A. Newland, have been committed to providing sound legal advice to clients throughout the Chicago area. We will review your situation and discuss other possible solutions, such as Loan Modification Strategies or making application with the Home Affordable Foreclosure Alternatives Program (HAFA). Call, fax or e-mail any of our Arlington Heights, Libertyville, Crystal Lake, Waukegan or Chicago office locations to schedule your consultation today.

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