| refinance, mortgage | 8 Apr 2008 12:00 AM |
| Common reasons why people refinance by Michelle Kour | |
People refinance by moving to another loan but on new terms. Mortgage refinancing is something which can also enable a borrower to borrow more money to consolidate debts or for other purposes taken that they can afford to meet the repayments on the larger loan amount.
Here are some of the common reasons why people refinance:
1. To save money
2. To refinance to a lower monthly repayment – this is done by refinancing your exiting loan at a lower rate which will decrease your monthly payment. Refinancing your loan and fixing your rate when rates are low could save you thousands over the term of your loan. You can alos lower your monthly payment by extending your loan term. Spreading your loan repayments over a 30 year term as opposed to a 25 year term will reduce your monthly commitments but you will pay more money in the long term.
3. Refinance to consolidate debts – this is done by repaying all your existing credit cards, loans car leases and other debts and replacing them with one loan, which could result in a significant saving. You can be paying up to 18% p.a. on personal and unsecured loans as opposed to half that interest rate on a secured mortgage loan. Combining all existing debts into one loan with a much lower interest rate will enable the borrower to save money and if they ap[ply the savings to extra loan repayments on their mortgage they will even pay off the debt sooner. A refinance and debt consolidation loan is a smart solution for anyone who has a large amount of different monthly repayments.
4. Refinance to change between one lender to another – Some lenders offer better loan deals than others. You may find lenders that offer better customer service, more suitable loan terms or just a deal that is more appropriate for your needs. Often borrowers feel unvalued by their lender and choose to refinance to a lender that they feel cares more about them.
Whilst deciding to refinance, it is always good to sit down and do your own calculations. You will need to determine if you get a better interest rate when you refinance than you already have; any break cost fees to exit your existing loan when you refinance need to be quantified; and new costs when you refinance also need to be ascertained.
It is important to remember, that when deciding to refinance, not everyone comes out ahead. Some lenders have high early repayments fees while others may to be prepared to waive these particularly if you refinance internally with them to a different loan product that better suits your needs. Early repayment fees usually drop off after 5 years – if you discharge and refinance before then the costs may be such that a refinance is simply not viable option for you.
Borrowers’ should make sure therefore, that they consider how far down the track they are with their loan. If borrowers have a minimum amount of years left on their loan, it is important to investigate into whether is makes financial sense to refinance. It is best to research what exactly you are being offered in the refinance package and compare it to what you have now.
You may be offered attractive deals with lower fees and interest rate, but at the same time you may lose a lot of the features and benefits associated with your existing mortgage.
Here are some of the common reasons why people refinance:
1. To save money
2. To refinance to a lower monthly repayment – this is done by refinancing your exiting loan at a lower rate which will decrease your monthly payment. Refinancing your loan and fixing your rate when rates are low could save you thousands over the term of your loan. You can alos lower your monthly payment by extending your loan term. Spreading your loan repayments over a 30 year term as opposed to a 25 year term will reduce your monthly commitments but you will pay more money in the long term.
3. Refinance to consolidate debts – this is done by repaying all your existing credit cards, loans car leases and other debts and replacing them with one loan, which could result in a significant saving. You can be paying up to 18% p.a. on personal and unsecured loans as opposed to half that interest rate on a secured mortgage loan. Combining all existing debts into one loan with a much lower interest rate will enable the borrower to save money and if they ap[ply the savings to extra loan repayments on their mortgage they will even pay off the debt sooner. A refinance and debt consolidation loan is a smart solution for anyone who has a large amount of different monthly repayments.
4. Refinance to change between one lender to another – Some lenders offer better loan deals than others. You may find lenders that offer better customer service, more suitable loan terms or just a deal that is more appropriate for your needs. Often borrowers feel unvalued by their lender and choose to refinance to a lender that they feel cares more about them.
Whilst deciding to refinance, it is always good to sit down and do your own calculations. You will need to determine if you get a better interest rate when you refinance than you already have; any break cost fees to exit your existing loan when you refinance need to be quantified; and new costs when you refinance also need to be ascertained.
It is important to remember, that when deciding to refinance, not everyone comes out ahead. Some lenders have high early repayments fees while others may to be prepared to waive these particularly if you refinance internally with them to a different loan product that better suits your needs. Early repayment fees usually drop off after 5 years – if you discharge and refinance before then the costs may be such that a refinance is simply not viable option for you.
Borrowers’ should make sure therefore, that they consider how far down the track they are with their loan. If borrowers have a minimum amount of years left on their loan, it is important to investigate into whether is makes financial sense to refinance. It is best to research what exactly you are being offered in the refinance package and compare it to what you have now.
You may be offered attractive deals with lower fees and interest rate, but at the same time you may lose a lot of the features and benefits associated with your existing mortgage.
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