What is Refinancing
You’d be surprised at how many people don’t know what a refinancing loan is, or when or why to get one. Refinancing is simply taking out a new loan at a better rate than your old one. You can get a better rate if some time has gone by and your credit score has gone up, or if national interest rates have dropped.
Without the right knowledge and timing, it can hurt you to refinance. Refinancing can be done on homes or cars.
Pros of Refinancing
One of the biggest pros to refinancing is reducing your interest rate. As you start making more money in your career and pay all your bills on time, your credit score will go up. With a higher credit score, you may qualify for a better rate on loans than you did when you first got your mortgage. A lower interest rate can have a big effect on how much you pay every month, and how much you pay over the life of the loan.
Many people improve the quality of a home after they buy it. Fixing up a home adds equity to it, and taking out a home equity loan is a great way to lower your monthly payments. Basically, as you add value to your home, better loan options will become available to you.
Possible Cons of Refinancing
In many cases, you will have signed a contract that will cost you thousands of dollars in fees to refinance. The bank wants as much of your money as they can get, and you refinancing at a lower rate will cost them money. Most banks will require that you follow your first mortgage plan for at least 12 months before you refinance, so don’t plan on doing it right away.
Always shop around for different lenders. In some cases it makes sense to refinance with the original lender of your first home or car mortgage, but often you can get a better rate somewhere else. Credit unions are especially good for low rates. Always ask questions, and don’t be afraid to hire a lawyer to help you decipher the more complicated facets of the law.