It’s a common question circulating in space right now especially if you are just getting a loan for the first time. Refinancing a loan is a major move that can result in a major impact on your savings. Yet, it can also cause damage and make your experience worse than you expected.
To be perfectly honest, choosing to refinance makes sense only if you’ll end up saving money (not losing) and it won’t be a damage to your credit score. However, like any other process that’s involving money at stake, there are more considerations you need to look at first.
You can save money
One of the best reasons why you wanted to get a refinance is because you wanted to save more money than you actually borrowed. While you’re at it, it may help you spend less on interest on the duration of your loan.
Here are some ways you can lower down your interest costs thru refinancing:
- Opt for a shorter loan term. This means you are going to pay higher monthly payments but you’re just going to pay the interest fewer years than everybody else.
- For refinancing, always choose a lower interest rate so that you will be able to pay less on your loan balance.
To make sure if you’re saving money and not losing it, you need to calculate your savings in refinancing.
You have a choice to lower your payments
Another reason why you would aim for a refinance is because sometimes, refinancing can give you a lower net monthly payment. If your cash flow is not performing well, the thought of having a lower monthly bill can be very good to hear. If you have a lower interest rate or a longer term payment, it can lower your monthly payment by a hundred or so.
You will be able to cash your equity
There are a number of homeowners who chose to refinance so they can cash out the equity in their new homes to pay for other expenses such as home improvements, new business, or education.
However, there’s a risk in choosing to do so. Once you cash-out a refinance, that means you are also at the verge of losing that money if your business fails, the home improvements doesn’t do any good on your home, or if you end up always late in paying your tuition.
That’s why you need to be very careful before jumping in since the above reasons can cause you to get homeless in months after.
You can remove a borrower from the Loan
Sometimes, things change and you go through a divorce or you buy another home with a relative or a close friend – and this also means there might be a need to change the name of who’s officially responsible for paying the loan.
Refinancing means you will be able to check the borrowers listed and remove someone you don’t need to be there in the first place.
Just keep in mind that borrower’s name doesn’t automatically be removed at the deed or title of the home when the mortgage does, so it’s a different process you need to take on so you can have both documents updated.
If the things we have mentioned above entices you more and you decided to refinance, you need to watch out for these things:
- Make sure that there will be no prepayment penalties on the loan you will refinance to. There should be an option for you to pay the loan off early if you want to.
- There are closing costs that will add to the expense of your loan. It is better to pay them out of the pocket so you don’t pay interest on this cost, too.
- Taking cash out to your loan balance will lower down the equity of the property. But if you will just replace it with just another loan (of the same size), there will be no changes – just the same equity.
Based on the advantages and disadvantages mentioned above, you can start performing a basic analysis to see what loan terms you need to search for to make the new loan worth it. If you are interested to know more about personal loans and how you can get started, go check Cash Mart SG.