How does loan refinancing work?
Posted on Jul 7, 2014 11:05pm PDT
If you are thinking about refinancing your car or home loan, it's important to work out what's involved first. Here we will look at why you would want to refinance, the benefits of refinancing, what to look for when refinancing, and what you need to do to find the best refinancing deal for you.
What is refinancing?
When you refinance your car or home loan, you are essentially getting a new loan to pay off your old one. This can be done through your current lender or a new lender. You would usually do this to get a car or home loan that better suits your circumstances, or to unlock equity in your house.
Why would you refinance?
You may choose to refinance to raise extra money:
- To raise money for a large expense, such as home renovations, building an extension or a pool.
- To raise money for a purchase, such as a car.
- To raise money for an event, such as a wedding.
Or you may choose to refinance to get a car or home loan that better suits your needs:
- To get a lower car or home loan interest rate.
- To switch from a variable rate to a fixed rate, for example if interest rates are low and look like they are set to rise.
- To get a car or home loan with lower fees and charges.
- To get a car or home loan with more features (or fewer features, if you no longer need them).
What are the benefits of refinancing?
You could refinance to get a better
rate, which could help to save a substantial amount of money over the length of your car or home loan.
You could switch to a fixed rate loan, locking in a lower rate than you would pay on a variable loan, again saving you money. This could also help to give you peace of mind that you have locked in your rate, and you know how much you will pay on your car loan or home mortgage for the next few years.
You could refinance to get more flexibility or features on your loan, which could allow you to pay off your loan faster.
You could refinance to unlock equity in your home, giving you extra cash to renovate, consolidate debts, make a large purchase or to invest with.
How do you refinance your car or home loan?
While there are numerous benefits to refinancing, there are also numerous factors to consider as well. On top of that list is the cost of refinancing. Check the costs of refinancing your current car or home loan, as you may have to pay fees or charges to refinance.
Once you have worked out how much it will cost to refinance, look for a car or home loan that will make it worth your while to make the switch. Compare car or home loans, making sure to choose one that offers features and rates that suit you.
Then it's simply a matter of applying and getting approval. Once the car or home loan has been approved and all documentation has been signed, your new lender should arrange for your old loan to be paid off.
Lend Me - Car & Home Loan Brokers - Perth, Western AustraliaSource: www.lendme.com.au