Refinance Loan – A Short Guide For First Timer Home Loaners

Refinance Loan – A Short Guide For First Timer Home Loaners

Are you tired of having high interest rates for your home loans?

How can I lower interest rates for my past home loan?

These questions comes into my mind before discovering this fantastic turn around method that was used by millions and millions of people specially those people who have been labeled as poor creditor. This method is what we called refinancing home loan.

Most of you might question me back “what is it?”. This question is typical to first timer in home loans. Well based on wiki, refinance or refinancing loan is the term used to the substitute of an existing debt obligation with a new debt obligation bearing different terms. Its main objective of refinancing is to alter monthly payments owed on the loan either by changing its loan interest rate, or altering the term to maturity of the loan. Refinance or refinancing is also use to reduce the risk associated with an existing loan. Interest rates on adjustable-rate loans and mortgages shift up and down based on the movements of the various indices used to calculate them. By using this method, the risk of increasing interest rates drastically has been removed, consequently ensuring steady rates over the period of time. This flexibility comes at a price as lenders typically charge a risk premium for fixed rate loans. So this explains some of the basic theories regarding on refinancing. Due to this definition from Wikipedia, I have formulated some advantages in it.

Advantages of Loan Refinancing

  • It helps to extend the maturity date of your past loan. By refinancing your loan, it will extend your past maturity date and ultimately considered extinguished for all of your past agreement.
  • You can find lower interest rate when refinancing your loan. Off course, everyone will be happy with this. This will make things easier for your budget.
  • If you have many existing loans, refinancing loans might be the best option for you. Instead of dealing with multiple parties, you can merge it into one loan to pay them off, and you’ll only have the new loan to continue with.

After lay down all the best part of refinancing your loans, I also found some flaws with this method.

Disadvantages of Loan Refinancing

  • Sometimes paying a smaller interest rate for the new loan is not guaranteed. Because there is an accumulated percentage for the new loan, it only method that it has a probability of paying bigger interests than before.
  • If you have existing loans, finding a lending institution for your new loan would be difficult. Because an existing loans leave a mark on your credit history, and most of the lending institutions will consider you as a risk in their investment due to your poor credit history.
  • Now that you have learned the basics of loan refinancing and found out that having a bad credit history will hinder only hinder you to avail the advantage of refinancing loan, it is wise to prevent these things and better check your overall finances.

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