Refinance

Refinancing

Refinance loans allow you to take an old loan or several old loans, and redo your deal. In today's economy, some banks are refinancing mortgages so that distressed homeowners can better handle payments and actually make the payments instead of heading toward default on the loan. Most commonly refinance loans are mortgages, but it can be done with other debts such as vehicle loans. There are fees, and the interest usually is different than the original loan. Payment time can be stretched out, so these loans may cost more over the duration.

Many people do this when they are unable to continue to pay current payments, or when they are so far behind they are in jeopardy of default or losing their home. If they are able to refinance, payments are lower, interest can be higher, but payment time is longer, and making lower payments over a longer period of time results in a net gain for the lender. This type of loan can also be done with vehicles. Another reason to refinance a mortgage is when the homeowner wants or needs to draw out equity in cash.

Refinancing a mortgage will involve fees, appraisals, title search, and charges similar to an original loan. Even with these extra amounts worked into the loan, you may be able to save with lower interest rates over the long term of the loan. Loans can be used to obtain extra cash for improvements, or bill paying. The refinance loan can be used to change a mortgage from a variable or balloon rate to a fixed rate. It is the easiest way out of a foreclosure, but with bad credit, interest rates will be high.

The current economic problems in the USA have prompted the government to back new loans for consumers who are in difficulty. The goal of a refinance is to enable the holder to pay the debt. Some homeowners without paying problems want to refinance to a shorter term mortgage so that they build equity quicker.

Reducing monthly payments is a reason for refinancing your home. Lower payments can be easier to manage, and if you are going to stay in your home for a long period of time, this can be beneficial. It will just take you longer to reach the end of the loan and own your home. Again, facilitating payment of the loan is a major goal.

When you look at your new refinancing loan, be sure to take into account the length of the loan. While your APR percentage may be reduced, if you have to pay for many more years, it is actually costing you a lot more money in total. Check with your current loan terms to determine how much penalty there is for pre-payment as you switch to your new loan. Tax savings from your mortgage payments may also be reduced if your payments are also reduced.

It is important to work with a trusted loan counselor or banking facility before you sign anything. You want to get the best deal for you, without excessive fees or added charges.