What is Refinancing?
Refinancing is getting a new mortgage to replace an old one, allowing a borrower to get a better interest rate and term.
Although commonly associated with home loans, it can also be applied to student loans.
Pros and Cons of Refinancing
|Can lower monthly payments - new lender may offer different repayment plans, giving you the option to lower the amount you pay each month||Few qualify - banks are very selective with lending. You'll need a really good credit score to get low interest rates.|
|Simplifies - If you have several loans, by refinancing, you can back all the small ones and make one monthly payment instead of many small ones||Paperwork - lengthy loan application that allows for a complete review of your finances and employment history. including providing recent income tax returns, pay stubs, investment and loan statements, and proof of checking and savings account balances|
|Lenders may provide incentives- lenders can offer you a rebate or percentage back on the balance of your loan if you refinance with them||Prepayment penalties - original loan may include a penalty for paying it off early, which includes refinancing it|
Rate-and-term —when you refinance your remaining balance for a lower interest rate and term you can afford
Cash-out —take out a new mortgage for more than you owed, and use the difference to pay off remaining debt
- Know your credit score; the higher your credit score, the better mortgage refinance interest rate you’ll be offered.
- Research your home’s current market value
- Look for the best mortgage rate
- Know your all-in cost; many fees are associated with refinancing, such as appraisal fee, document-processing fee, and credit report charge
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