Refinancing, in simple terms, is the transfer of an existing finance scheme from one financier to another. In today’s time, in the financial service market, this concept is well established and borrowers use this technique to lessen their burden of repayment. However, as obvious, there are a few cons associated with refinancing the mortgage and the paragraphs shall discuss the merits and demerits of the refinance scheme.
What are the benefits of refinancing?
You avail the mortgage at the lowest rates: The prime advantage of refinancing the mortgage is that you can lessen the burden of interest, payable on repayment. Once you refinance the existing loan, the new lender will definitely offer a lower rate of interest and hence, you can incur some significant saving.
The rate of interest on mortgage and loans keeps rising with time, for reasons whatsoever. As the interest rate rises, you will have the compulsion to pay at the higher rate. In those instances, you can simply refinance the mortgage to escape the needs for paying higher interest. Even if the rate is not rising, you can reduce the interest rate, simply refinancing the debt.
You should refer to the website of the financier to get an idea on the amount you can save, using the refinance calculator.
You get enhanced term for completing the repayment
Another significant benefit you get with the repayment is that you can enhance the repayment term with refinancing. The refinancing package comes as a fresh loan and hence, you will start afresh the repayment, for a lesser amount of outstanding as well as at a lower rate of interest. Combining all these factors, it will be right to say that refinancing makes it easier to make the repayment. This is one of the key factors that can be accounted beyond the popularity of the refinancing schemes.
You can shift from the floating rate of interest to the fixed rate basis: Another advantage in opting for the refinance plan is that you can shift from the floating interest to the fixed interest structure. This will keep the installment amount fixed, irrespective of the rise in the interest rate and hence, you can escape those instances, wherein you will have to pay a higher amount for the repayment. On the whole, you can keep the overall amount you pay as interest on your mortgage.
You can use the refinance calculator, available on the websites of the financiers to calculate and compare the amount you can save, shifting from the floating rate to fixed rate interest pattern.
You can get some lump sum cash amount: You can use the refinance scheme to avail some lump sum cash and hence, meet your exigent cash requirements. Assume the instance that you are running through the repayment of mortgage and suddenly, you are in some exigent need of hard cash. In those instances, you can avail some liquid cash by refinancing the debt, in parallel to reducing the existing rate of interest and enhancing the repayment term.
The financier will approve the refinance amount, depending on the valuation of the property and after adjustment of the existing debt with the existing financier, you can get the additional amount, if any, as hard cash. The best part is that you will get the liquid cash at the lowest rate of interest as well as within the shortest time span.
What are the challenges with refinancing?
As nothing under the sun is absolutely perfect, there are downsides with the refinancing schemes as well. First and foremost, financiers usually set up stringent criterion that is hard to match as well as it involves the payment of various fees and charges that can eat up a significant amount of your savings that you incur with the refinancing scheme. In addition, refinancing is not a suitable option for those customers who are within the initial phases of repayment of the existing mortgage.
Considering the pros and cons, it will be right to say that the suitability of the refinancing is completely dependent on your specific standing and you should make the decision for opting for the refinance, considering the specific advantages and disadvantages that you can avail from your standing.