Refinancing loans
Refinancing may be defined the paying off of an existing loan with the proceeds from a new loan. The aim of switching from an existing to a new loan is to get a lower rate of interest. Several debtors consider it a good option to refinance their home loan for a new loan after a few years. This way, they not only get a lower interest rate but a longer repayment period as well. This makes them pay their installments comfortably over a long period of time, that too on a lower rate of interest. Borrowers who generally find it hard to pay their huge installments and require some cash in hand go for refinancing loans. Thus, people refinance for the following reasons :
To get a lower rate of interest .
To get liquid cash in hand .
To have a longer loan tenure .
To change from variable to fixed rate of interest .
To save on monthly installments and total tax payable .
Despite of all these factors, not everyone should refinance their running loans. Refinancing should be done only when the market rates are low. It makes sense only for those homeowners who bought houses when rates were higher or those who want to consolidate their bills. Before refinancing loans, take the following factors into consideration: .
Your current mortgage rate: Calculate the difference between your current mortgage and the one you will pay your loan at after refinancing. Larger the difference between the two better is the refinancing deal. Refinance when the rate on mortgages is extremely low. Compare the deals and quotes of different lenders and compare them on the basis of APR (annual percentage rate charged) .
Overhead Charges: Overhead charges include the assessment, agreement or processing fees, the annual charges, the closing costs etc. These are also to be taken into consideration. Make sure than the Overhead charges you incur are far lower than your savings. Otherwise, refinancing will cost you high.
Cash in hand: Most borrowers refinance to get some liquid cash in hand after paying off to the old lender. If the cash you will get in hand from refinancing is suitable to your funding needs, go for refinancing loans .
Compare various lenders: Before signing a particular loan deal make sure that you are dealing with a licensed lender and not a loan-shark. Compare the quotes offered by various lenders and go for the one that gives you the maximum benefit in totality. Nowadays, various comparison tools like loan calculator etc. are available on the internet that offer free comparison service. Use any of these to find out the approximate amount of EMI (equated monthly installment) that you will have to pay. .
So, before refinancing loans, make sure that you have done a thorough market research and are dealing with the best lender.
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