What is Refinancing
Several financial experts out there often recommend refinancing your home, student, and auto loans, along with other types. Refinancing is always sold as something smart to do, and if timed correctly, could save any person thousands of dollars in the long run. But what exactly is refinancing, and when should you do it? We’ve compiled some of the most common questions about refinancing and their answers.
What it is
When taking out a loan for school, a home, a car, etc. both loaner and loanee sign a document. This document binds both parties to the conditions of the loan. These conditions include the loan amount to be disbursed, the amount to be paid back, the interest rate, and the payback period. There are more details than those, but those are the ones that usually carry the most weight and importance. Most people think that once they sign those documents, that’s the end of the deal. This is where refinancing comes in.
Refinancing allows you to take an existing loan and then replace it with another loan with different conditions. These conditions can differ from lower interest rates, lower monthly payments, different payback periods, etc. These changes in conditions can save a person time, money, and even stress.
How It Benefits You
Refinancing your loan and changing the rate on it can reduce your monthly loan payment. This is extra money that could go towards savings, emergency funds, fun money, or whatever else you want! This is extra money that you’ll be getting for the rest of your loan, which could be a substantial amount depending on the time left to pay it off. Depending on the terms, refinancing may also let you change the payback period on your loans.
This could be useful if you are looking to get rid of your loans sooner or feel comfortable enough to pay more on it than you already are. The loan type can also be changed from variable to fixed, or vice versa. This can help you adjust up or down as interest rates change or help you have a steady payment each month. These are all different ways that refinancing can help, but just as with any loan, you’ll have to study your options first.
When to do It
Just because the option of refinancing exists doesn’t mean that everyone should go and change the conditions of their loans tomorrow. Some refinancing options can hurt the loanee in the long run! Some of the best times to refinance your loan are when you have a high-interest rate that can be changed, a loan with 15+ years left on it, or an adjustable-rate mortgage. If you are trying to adjust and refinance a loan outside of these conditions, make sure it makes sense in the long run.
Refinancing a loan with only 10 years on it at a lower rate means extending the number of years that you pay on it. Refinancing a loan also often comes with loan closing costs. This fee could range anywhere from 2% to 6% of the refinanced amount. If this fee exceeds the amount you would be saving, then refinancing makes little sense.
Still Unsure? Call in The Pros
Over the years, we have helped countless customers not only get loans but refinance them too. We not only help explain to you the whole process but match you with the best loan possible for your situation. If you are considering refinancing your loans or need help getting one, give us a call! We are more than happy to help you out with your financial needs.