If you have a loan that is too risky or too expensive, you can refinance into a better one. The lending landscape may have changed since you took the loan, and there are various ways to improve your loan terms. Whether you have an auto loan, mortgage or any other kind of debt. refinancing gives you the opportunity to move the debt to a better position.
So, What’s Refinancing?
Simply put, refinancing replaces your current loan with a new one that pays off the existing loan. The new one should have better features or terms that significantly improve your finances. The details, however, depend on your lender and the kind of loan you have, but the process generally looks like the following:
-You have a loan that you’d like to improve in any way.
-You look for a lender with better terms & conditions and apply for a new loan
-The new one pays off the current loan.
-You are left with the responsibility of making payments on the new loan.
The Pros of Refinancing
Save Money
Saving on interest costs is the primary reason one would want to refinance. To achieve this, you need to refinance into a loan with an interest rate that’s lower than your existing one. Lowering the interest rate can save you a substantial amount of money, especially if you are dealing with large amounts or a long-term loan.
Lower Payments
Another benefit of refinancing is that it can lower the required monthly payments. This makes it easier to manage your money and have more for your monthly expenses.
Reduce The Loan Term
It is also possible to refinance into a short term loan. For instance, if you have a 30-year mortgage, you can be able to refinance it into a 15-year home and even enjoy a lower interest rate
The Cons of Refinancing
Lost Benefits
Some types of loans have some benefits that are lost once you refinance. For instance, federal student loans tend to be more flexible than private student loans if you encounter financial hardship. Ideally, federal loans can be partially forgiven if your job involves public service.
Transaction Costs
Refinancing tends to be costly, particularly with loans such as home loans. You could be looking at closing costs that add up to thousands of dollars and you want to ensure that you will come out ahead before paying those costs. Other loans can have origination and processing fees.
Talk to the friendly staff at Mortgage Broker Mareeba to access your individual position to see if a refinance is right for you.