Find Out How Refinancing Works to Your Advantage
No matter how hard you try, circumstances often bring changes in life. The same case applies to loans. You might have to borrow some more money. If that happens, a lender gives you a new facility. Swapping of loans stems from reasons such as:
- When you seek for reduced interest rates
- Shortening the repayment period
- Converting from variable to fixed rate
Refinancing comes about when you want to swap a loan. Perhaps you have found another lender who promises to offer better terms. Alternatively, you may opt to shop for a different type of loan package.
Here’s what happens in the process:
- New loan application
- Clearing the outstanding amount on the current loan
- A new credit facility takes effect
- Need for refinancing
Despite the extent of the process involved, refinancing comes with benefits such as:
Savings
When you refinance a credit facility, you save money which you would otherwise have paid as interest. What happens is that as you move from one loan to another package, you do so at a lower rate of interest.
Cash flow
Take, for instance, a mortgage that you currently service. To date, you may have made several payments as per the contract. Refinancing offers you a chance to lower these repayments. Eventually, you end up with more money. Extra cash in your coffers allows you to meet additional monthly expenses.
Loan term
Refinancing can result in shifting to a loan with a shorter lifespan than the first. An example is a home loan with a 30-year repayment period. You could refinance it to a 15-year package. Do some calculation and ascertain the benefits that come with the shorter term. Sites such as Refinansiering.nu have online loan calculators to assist you.
Debt consolidation
Multiple loans can cause you much inconvenience. Consider consolidating them into one. Negotiate with prospective lenders such that you get a lower rate of interest than what you currently pay. However, you must keep off from the temptation to start overspending once you recover from the weight of debt.
Type of loan
Even when the benefit does not emanate from interest rate reduction, there are still other ways in which you stand to gain from refinancing. Take for instance where you have a loan at a variable rate. You could shift to the fixed rate alternative. Variable or adjustable-rate loans start low but increase with time.
What next
Once you have understood the different ways of refinancing and what each holds for you, research broadly. Search for lenders and their corresponding rates. Alternatively, you could request your bank to reopen the negotiation window. Before you do, find out what other banks are offering for the same type of loan.
As a financial score, refinancing helps reduce your repayment amount. The option also shortens the loan period. At the same time, you can control your borrowing habits. By exercising prudence, you can manage your debt. Before taking this option, assess your situation carefully. Seek advice from someone who understands debt financing. Above all, be a disciplined person by avoiding much debt.
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