Refinancing: When Should You Do It?
Loan refinancing can get you out of an uncomfortable financial situation, but it can be risky when you compare it to other options. Every type of financial service that changes the repayment method of a loan should be analysed and discussed with an expert before committing to it. You might end up doing more harm than good, since lower interest rates do not necessarily make the situation better for everyone.
When it comes to a loan refinancing, you should analyse every option and aspect of your situation and make a decision. We will see when it’s ok to refinance and when it can have an adverse effect on your finances.
Why Would I Want to Refinance My Loan?
When you choose to refinance, you will take a new loan, and you will use it to pay the existing one. Sometimes, you will have a new lender, but you can also do this with the one you are using already.
Loan refinancing can be beneficial for your finances, since it is a precious tool when fighting overwhelming debts. If your current loan is full of high-interest taxes and other fees, you will end up losing money. The situation can get out of control if you have to pay high interest rates. The sooner you realise that you need to take action, the sooner you will reverse the situation and finally have control over your debts, not the other way around.
Remember, the more fees you have to pay, the more money you will lose in the long run. It isn’t about the loan anymore; it is about the mountain of interest costs and high fees that eat away at your pocket.
Loan refinancing can reduce the amount of money you spend on fees and interest rates. This is usually one of the main reasons why people start looking into this option. It can also reduce the term if you can manage to pay it faster. Refinancing is about getting the best deal for the same amount of money you have to pay. This means that it can also be a good idea if you wish to consolidate some other debts into one loan and get rid of the stress brought by several monthly payments.
When Should I Refinance?
Some sites can calculate how much money you spend on your loan including fees and interest rates. You can compare the costs of your current loan with the ones of a better option. It’s all about the difference in the long run, so do yourself a favour and start thinking about a better deal.
What Are the Disadvantages?
Lenders don’t want you to abandon their loan because you discovered a better deal from a competitor. This is why refinancing comes with a fee. Learn about these early repayment fees and how they can affect your savings. Also, ongoing taxes can affect your finances, so take them into consideration.
Always weigh up all the extra expenses involved in the transfer and decide whether or not this really is the best solution for your financial situation. For example, exit fees may be a problem if you pay out the loan sooner than the fixed term. But this always depends on your lender so it would be better to ask him/her or check your contract.
Is It Worth It?
It depends on what type of loan you have. The costs of refinancing are dictated by your financial situation plus the value of your loan and the type of loan you want to refinance. You can save money by switching between a fixed rate loan and a variable rate loan, but be careful with the variable one.
It can be low one day and destroy your wallet the other. That is why it is called “variable.” Also, with the new loan, you may not have the option to make additional repayments; so keep that in mind.
We highly recommend asking for an expert’s advice when you want to refinance. Loan refinancing can be a messy business as you must take into consideration many aspects of the old and the new loan. NSW Mortgage Corp can help you with advice along with some flexible refinance loans that will help you keep up with your payments. Call us now on 1300 137 778 for a free consultation today!
Loan refinancing is a double edged sword. If you don’t know what you are doing, you might end up making a wrong decision. So, before you agree to go along with it, do plenty of research. If loan refinancing will reduce your monthly payments, offer a smaller interest and shorten the term of your loan, then you might be on your way to a better financial situation.
Sometimes, loan refinancing may not bring all these advantages. But if only one makes a difference in your pockets, then you should definitely take it into consideration.