Good Debt!

Can a DEBT be GOOD? Yes it is!

For Creditors all secured debts are Good Debts and for Debtors Good Debts are those which builds wealth over the long run.

Question: Can Debts build wealth?

Not all debts are bad. If used precisely Debts can be huge source in wealth building. Good Debts can be considered as a sort of investment, which generates
income at a later stage.

Good Debts is secured with a valuable asset, like a home mortgage or, perhaps, a car loan, and so considered an investment.
Home loans are good because over time a home’s value increases. Student loans are also considered Good Debt because they are also like an investment. Students who graduate with a college degree earn, on average, higher incomes than those that don’t.
Home loans and college loans are good for another reason: they usually have very agreeable terms. Both types of loans come with very low interest rates, and borrowers repay the debt over a long period. The typical home loan, for instance, carries a 30-year term. The interest on college loans is so affordable that the graduate can repay their loans slowly over a long period as they gradually earn more money and build their personal wealth.

"Mortgage debt is Good Debt. You're borrowing money, but you're getting a tax advantage and can write off interest on an asset that's appreciating over time. Plus, you get to live there."

One of the secrets, therefore, to being smart with your money is to differentiate between Good Debt and Bad Debt.

1) Good Debt: Having a mortgage, getting a home equity loan or line of credit to fund a home renovation or remodeling job.
Bad Debt: Borrowing money to trick out your car to impress your friends, or just yourself.

2) Good Debt: Getting student loans to attend college.
Bad Debt: Using your credit cards while at school to buy groceries, throw parties or accumulate stuff. Many students are saddled with insane amounts of debt after they graduate. Average credit card debt after graduating from college: $3,000.


3) Good Debt: Leverage in real estate or using the bank’s money to invest in real estate. You can use leverage by borrowing funds to get into real estate investing with the expectation of turning in a profit.
Bad Debt: Leverage in Wall Street or borrowing money to buy stocks. In my opinion, buying stocks on margin is a bad idea. This is a subjective opinion because I’m sure there are a lot of successful margin players out there. As an average investor, I’d avoid trading on margin like the plague. There’s a difference between using a loan to invest in real estate versus investing in the stock market: if the real estate market drops, you are not forced to pay off a mortgage in short notice. With a drop in stock prices, you’ll be subject to margin calls that will force you to raise more money to hold on to your position or else force you to redeem at poor market prices. Using leverage takes a good amount of risk, the question here is if the risk is reasonable and if you’re fairly comfortable taking it.


4) Good Debt: Applying for a business loan and borrowing for business. Many ventures need cash flow that they don’t have at the moment to run their operations or expand their facilities. Using loans to grow a business is a sensible approach to take.
Bad Debt: Using your credit card to go on vacation, travel or to just have a good time; borrowing for pleasure. Once the vacation is over, you’re left with fun memories and a financial obligation to pay up.

While the differences often seem logical, it is a logic that is apparently missed by many people.

Therefore, Good Debt helps borrowers by increasing their wealth and by building a healthy credit history. Borrowers who repay their debt diligently earn a good credit score and become eligible to borrow more good debt in the future. Good Debt is investment debt that creates value.

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What is a cashout refinance?

What is a cashout refinance?

The cashout refinance is a mortgage refinance which is a greater amount than your present mortgage amount. You can go for a cashout refinance to get the home equity that you have gathered throughout years. Suppose you have a mortgage balance of $ 50,000 and you have home equity of 70,000 dollars. So to get the home equity, you can go for a cashout refinance. You can take out a mortgage loan of 100,000 dollars. Thus your new mortgage loan is greater than your existing mortgage balance.


Why would you for a cash out refinance?

There may be several reasons for doing a cashout refinance but it depends upon your needs and situations.

1. If you want to buy a new property or a car and you want easy cash, you can use your home equity and go for a cashout refinance.

2. You can invest the money that you get after cashout refinance to gain more profit.

3. You can pay off your high interest rate credit card debts through the money that you get after cash out refinance.

4. If you need immediate cash to pay off your medical bills or your child’s college fees then cashout refinance is a good option available for you.

5. You may even lower the interest rate of your existing mortgage through the cashout refinance.

So depending upon your situation, if you need easy cash and you think that cashout refinance is a good choice for you then just do a bit of research on the market and talk to different lenders so that you can get the best rates and terms available in the market. Hope it helps learn about cashout refinance. Feel free to ask any questions and share you suggestions.

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Pros and Cons of Cash-out Refinance:

We all know what refinance is. Cash out refinance is a type of refinance that we can choose if we are in need of some easy cash. Now the question may come - what is Cash- out refinance?

What is cash out refinance?
If you refinance and take cash out more than the existing unpaid loan amount, then it will be called cash-out refinance. So to get the Cash-out refinance, you should have enough equity on your home to back it. Most lenders and banks will not approve you for the cash-out refinance if you have not completed one year or more after taking the existing loan.

Pros of Cash- out Refinance:

1. You can utilize the money after cash out refinance to fulfill your sudden needs like paying medical bills or your child’s college fees.

2. You can invest the money and get better returns.

3. You can buy a new property or some thing else with the money.

4. You go out for a vocation. You can go for a world tour which can be your life time experience.

5. You can pay off your high interest rate debts like credit card debts.

6. You can pull cash out to make improvement on your house.

Cons of Cash-out Refinance:

1. It is not always too easy to get approved for cash-out refinance. At least you will have to wait for a year after taking the loan to get a cash-out refinance.

2. The interest rates may get higher than your existing loan after the cash-out refinance.

3. You may have to pay pre-payment penalty if you go for Cash-out refinance.

Like all the other things, cash-out refinance has also some pros and cons, but it is a great help if you are in need of urgent money and you have enough equity. If you have completed one year after taking the loan and you will have to pay medical bills or your child’s tuition fees or you want to pay off your credit card debts, then the Cash-out refinance is the best solution that you can choose.

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Refinance

If you pay off your present loan with another loan with different terms and condition, this is called Refinance. This is mainly done to reduce the interest rates or cost of the loan. Sometimes it is also done to pull out the home-equity so that it can be used to pay off some high interest rate credit card debts. It can also be done to increase or decrease the time period of the loan. You can also turn the mortgage from ARM to FRM by refinancing. Even you can opt for refinancing to lower the monthly mortgage payments by increasing the total duration of the loan period. And if you want to pay off the loan early as you are getting a lower interest rate, you can opt out this option of refinancing.



By the way, sometimes your lenders can claim prepayment penalty if you are going for refinancing before a certain period of time. So you have to calculate whether you are actually getting any benefits after refinancing as you will also have to pay the prepayment penalty. Last but not the least, if you want to refinance then first go to your lender and check out whether he can offer you what rates and terms you want. If he or she can’t offer you what you want then you can shop for the lenders and check out who can offer you the best rates and terms. There is another kind of refinance which is called Cash-out refinance. This type of refinance is mainly used for home improvement or paying off any credit card debts or student loan.

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