Know About Refinancing: Pros & Cons
Do you have an expensive loan? Is it a home loan, motor loan, or any other? If you have any of these, you can refinance it into a better loan. Refinancing helps you shift the debt to a better place. If you have any existing loan, refinancing will pay off the debt for the old loan with the new loan that you have taken.
Well, to gain such financial flexibility and potentially that too at a lower interest rate, many people choose to refinance. Well, is it a good idea to refinance?
To help you answer this question, let’s take a closer look at the pros and cons of refinancing.
1) Lower Interest Rates: People opt for refinancing mostly, to save money on interest rate costs. If you have a long term loan, you can always refinance to a loan with a lower interest rate that results in considerable savings.
2) Reduce the Time of Your Loan: Rather than extending repayment, you can refinance into a shorter-term loan. For instance, you may have a 30-year loan home, and if that loan is refinanced for a 15-year loan home (reducing the period of your loan), which will typically come with a low-interest rate (this will save you thousands in interest).
3) Lower Payments: When you refinance, you often start afresh, and the time taken to repay a loan is also extended. Your new balance is mostly smaller than your original loan balance. Due to this, more money is available in your budget, and also you have significant time to repay it. In this way, you can lower the monthly payments.
4) Change the Loan Type: Since fixed-rate loan maintains the same rate for the life of the loan, they offer more stability for the future. So if at all the current loan is of a variable rate, you can switch to a loan at a fixed rate of interest.
5) Debt Consolidation: You can consolidate your multiple loans into one single loan, especially when you are getting a lower interest rate.
1) Closing Costs: Refinancing can be expensive as well. Before saying a ‘Yes’ to refinance, determine how much closing costs you might be paying. You have to ensure that you are not suffering any loss because these costs can take up to thousands of dollars from your pockets. In advance, understand whether it is going to be worth it for you to refinance or not.
2) Interest Costs: Refinancing to a longer-term may lower your monthly payments. However, you might pay more interest over the lifetime of your loan. Care to check that refinancing doesn’t outweigh your savings.
We all know that saving money is the idea behind refinance. For this purpose, search around to find the best interest rate and loan terms. Be sure to evaluate all your options before making a decision. So now, are you curious to know how refinancing saves money? Drew Mortgage Associates, mortgage lenders in Massachusetts, will help you make this financial move effectively and will improve your finances.