Refinancing is basically the act of paying off an existing loan and replacing it with a new one. There are a few common reasons for homeowners to refinance… For example, to obtain a lower interest rate, to seize an opportunity to shorten the term of their mortgage, the desire to consolidate debt, and the need to tap into a home’s equity in order to finance a large purchase, such as renovations, college tuition or (on a darker note) a lawsuit.
If you’ve had the misfortune of going through a lawsuit (or even worse, losing one) your home equity might just be the thing to help you out when you think you don’t have anywhere else to turn. If you begin to consider refinancing as a path to pay out a lawsuit or judgement against you, here are some things you may want to factor into your plan:
The length of time you plan to keep your new mortgage: If you’re going to sell your home in the near future, refinancing might end up costing more money long-term than your lawsuit. If you don’t have any other options in the short-term, you might just have to take the hit over time. But if you plan to sell soon and you have other choices, it’s probably a good idea to explore those ideas before you commit to refinancing.
You might be able to refinance into a shorter term: Paying out a lawsuit is never fun, but there may be a silver lining inside this cloud! Refinancing can present an opportunity for you to benefit from savings as the years go by, and your ordeal fades into the past. If you refinance from a 30-year to a 15-year mortgage, the long-term savings might be substantial – especially if the new rate is lower. In this scenario, while your long-term worth is increased, money is freed up for other expenses. Your lawsuit expense may not be as fun as using equity to renovate your basement into that English-style bar you’ve always wanted, but at least it’s better than having nothing there to help you financially; and there may be benefits down the road.
Warning: Try to avoid lenders who will charge unnecessary fees. If you’re desperate to pay out a lawsuit or in shock from an unfavourable judgement, it’s understandable that you may not be as picky with lenders and choose someone quickly, who could take advantage of you in terms of additional fees. Just take a deep breath and try to avoid unscrupulous lenders.
How Much Will It Cost? The cost to refinance your mortgage depends on the strategy used to access the equity you need. But no matter which strategy, you’ll almost always incur legal costs because a lawyer will need to change the financing on the title. The lender will also require a new full appraisal of your property to confirm the estimated value listed in the application.
Refinancing your mortgage to pay out a lawsuit, or a judgement against you, is never a fun bit of business. Try to stay positive by calculating the possible long-term benefits when it comes to interest rates – and although it may be a challenge… Try to be happy with the “yesterday-you” who invested enough equity to save “today-you.”