What You Need To Know About Loans Refinance

Understanding loans refinance

Introduction

A loan refinance is a new loan that is taken by an individual so as to pay off the original loan that the individual had.  A loan refinance is usually in position, however, home equity loans can also be refinanced. The terms and conditions of refinancing tend to differ in different countries due to the different economic factors that affect the different countries. To qualify for a loan refinance, you have to produce your income statement, list of assets, current debts, value of the property you intend to use as security and the amount you are applying for. There a number of costs associated with loan refinance. They include; an application fee, loan origination fee, appraisal fee, title insurance fee, title search fee, discount points and prepayment penalty for the old loan. An individual with great credit can negotiate for lower a application fee, discount cost and loan origination fee. A loan refinance is sort after due to the following reasons;

• To reduce and enjoy better interest rates.
• To combine other loans into one loan. This may decrease the interest rates for a long/short term.
• To have a long term reduction of monthly repayments.
• To decrease or change the risk.
• To increase the loan repayment period.

 

 

Benefits of loan refinance

1. lowering of monthly payments: Most loan refinance lower the interest rates of an individual. A s a result the monthly payments of the individual are lowered.
2. Shortens the loan repayment period: In most cases where the repayment period is shortened, the monthly charges are higher but the total payments are lower.
3. Lengthens the repayment period: If an individual is having trouble making the monthly payment due to whatever reason, a loan refinance would be handy in that, it would increase the length of the loan by spreading out the cost over a great number of years and reduce the monthly payments.
4. Help to raise cash in hand: This is done by taking a new loan that is greater than your current loan. This way, you are left with some extra cash after paying off the old loan. This extra cash can be used to make profitable investments or to improve your home.
5. Debt consolidation: This is made possible by taking a loan refinance that is large enough to pay all the loans that you currently hold. This also reduces the interest rates greatly.

Drawbacks of loan refinance

1. It is more expensive in the long run: stretched payment periods reduce the monthly interest rates but in the long run , an individual ends up paying more lager amount of interest rates.
2. Prepayment penalties: Some loans have a prepayment penalty for paying it before the agreed period.
3. Raising cash in hand: It is very risky to take excess refinance loan so as to raise extra cash for investment.This is because, you are never sure if the investment you make will be profitable or will have losses. In case it suffers losses, then you end up in financial distress and straining to repay the loan.
4. Consolidation of other debts and loans: Taking a loan refinance so as to repay all your debts and loans is a wise idea but on the other hand, it would not be wise to repay an unsecured loan using a secured loan then you are unable to complete your payments in the end. This will make you loss the property you had used to secure the loan.

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