Emergency Refinancing

Most of what I have written on this blog had to do with the choice of refinancing your mortgage. There are however instances in which the possibility of refinancing do not represent a choice as much as an absolute necessity. Sadly such cases are becoming much more common, with the Credit Crunch currently biting ever deeper into the housing market.

Emergency refinancing can sometimes be a lifeline in efforts to prevent foreclosure. The first thing that needs to be said is that you should contact your bank as soon as you realize that you are going to run into trouble in terms of keeping up your payments. You may find this hard to believe but the bank would much rather work with you in preventing the loss of your home than work against you by starting foreclosure proceedings. This is not altogether due to selfless altruism on their part. The cold, hard, fact is that they would be taking much more of a hit by trying to sell a foreclosed property in the current market conditions than they would by coming to some kind of accommodation with you.

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One of the things that your bank manager would likely suggest would be to restructure your mortgage or that you pursue other refinancing options. There are several ways in which this can help you. They include the following:

  • If you are lucky enough to have some equity in the property you can look at Cash Out Refinancing. This option allows you to withdraw some cash from the property and repay any arrears on the mortgage in the form of a lump sum.

  • It could perhaps be the case that the bank would be willing refinance the loan, and move you to a better interest deal than the one that you are currently paying. This perhaps not very common in cases where borrowers are facing financial difficulties but some lenders would go to great lengths to prevent yet another property going to auction.

  • If you can just about meet your outgoings at the moment but you realize that you are going to run into trouble in the near future, refinancing can be a way of proactively preventing a major crisis. You can do this by using refinancing as a form of debt consolidation by refinancing the property for a large enough amount to repay the balance on your mortgage as well as any other unsecured personal debt that you may have (e.g. store cards, credit cards, personal loans). These kinds of debt often attract very high interest rates and by bundling all your debt into your mortgage (where you will be paying a lower rate of interest) can significantly reduce your monthly spending on credit.
It is perhaps never a good thing to feel that you are forced to do something. However, emergency refinancing can sometimes mean the difference between losing and keeping your home. You should therefore ensure that you do not discount it as an option from the start.

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