Refinancing
Refinancing is a great way to save some money. Practically all types of loans can be refinanced for lower interest rates and increased savings. So, if your pocketbook is a little tight and your monthly mortgage payments are too much too handle, or if you locked into an especially high interest rate a few years back, refinancing may be a viable option for you.
What is Refinancing?
Refinancing a loan is simply taking out a new loan with more favourable terms to pay off your existing one. This is most commonly done with home mortgage loans, which are long enough to warrant a change in your loan, even when there are associated penalty fees for the change. Mortgage refinancing is mainly handled by banks, credit unions, and other finance companies. These are the lenders that supply the money.
Should You Refinance?
Refinancing is usually done for one of four reasons: Most people want to reduce their monthly payments; some want to consolidate outstanding debt, such as combining a first and second mortgage into a new first mortgage; some want to access built-up equity in their homes, and some just want to get out of a mortgage product that they don't like.
You may also use refinancing as a way to switch from a fixed rate to a variable rate, or vice versa. Refinancing may decrease the number of payments you have to make in order to pay off your mortgage. If you are able to refinance at a lower rate you will eliminate the high interest costs of the debts you pay off, and you may even come out with a lower monthly payment than you currently have.
Considerations for Refinancing
But refinancing is not a good idea for everyone. It is not just interest rates alone that determine whether you should refinance, you also need to consider all the other associated fees such as closing costs. When you refinance your home it is much the same as buying a new one. New home appraisals, inspections, and loan applications will be required and tacked onto the loan. This means that you need to make sure that your new loan is at least 2% less than you old one to make it worthwhile.
Home Equity Loans
Sometimes homeowners think about refinancing their home, when what they really need to do is get a home equity loan or a home equity line of credit. With a home equity loan you get your money in a lump sum, and you pay it back in fixed principal payments over a fixed period of time. A home equity line of credit is a secured form of revolving credit in which your home serves as collateral.
By getting a home equity type of loan you may get a lower interest rate. You may be able to get certain tax advantages: check with your tax advisor.
Some things you may use your home equity funds for include:
• Home improvements • Consolidate debt • Provide money for emergencies • Start a college fund • Pay for major purchasesRefinancing Your Car Loan
You may also be able to refinance your car. If interest rates drop, you can usually refinance your current car loan. When you refinance your car, you pay off your current car loan with a refinancing loan from a different lender with a lower Annual Percentage Rate (APR). You will not need to get your car appraised, because auto financing is based on how much you need to pay off your current car loan, not the value of the car.
Remember:
Times are tough right now. Refinancing is a pretty simple way to save yourself a lot of money. If you are considering this option you can get pre-approved for a refinancing loan today by applying online.