Is it Beneficial to Refinance?
When considering making changes to any of your financial services that should be the first person you contact. However, there is a lot to know before you are even ready to make the decision to discuss refinance rates with your banking professional.
Why Would I Refinance?
While there are many reasons people choose to refinance, there are two that are most common. The first is because of a considerable drop in interest rates. When the cost of borrowing drops by 2% or more the low refinance rates will usually result in your saving money on your mortgage. When you are able to take advantage of low refinance rates you have 2 options of what to do with what you gain. You can choose to maintain the current payment rate and shorten the term of the loan or you can take a reduction in payments and maintain the term. The other reason many people choose to refinance is because they wish to take cash out of the equity they have accumulated and refinance the loan. This can be advisable for those undertaking a considerable expenditure such as financing a child’s education. Still more common today is people using this cash out refinance option to pay off high interest credit card debt. In the long run this option can save you a considerable amount of money.
What are the Costs of Refinancing?
There are always costs involved in refinancing. That is why you will have to weigh the costs against what you will gain with the new low finance rates. In reality, refinancing is actually paying off the existing loan with a new one. Typically there is a fee charged for paying off a loan ahead of the agreed time. There is also administration and other fees required for creating the new loan. These fees are usually recovered through the low refinance rates.