How to Refinance Your Loans
How to Refinance Your Loans-
What is refinancing?
Refinancing is the process of taking out a new loan to pay off your existing loans. The goal is to lock in a lower interest rate and better loan terms.
Doing so can decrease your monthly payment and the amount of interest you’ll pay over the loan term.
For example, let’s say you have a $250,000 30-year mortgage and refinancing your loan results in a 0.5% interest rate reduction. Your monthly payment would decrease by $75 and you’d save $27,000 in interest.
If you refinanced to a 15- or 20-year mortgage, you’d save even more money, but your monthly payments would increase.
Will refinancing always save you money?
Although refinancing is a great tool to help you save money, refinancing could sometimes end up costing you more. If you extend your loan term, you’ll pay more in interest even if your rate is lower.
For example, let’s say you have a $30,000 auto loan payable over 48 months. If you refinance loans and extend your loan term to 60 months, you’ll end up paying an extra $900 in interest.
What’s the process to refinance a loan?
Refinancing a loan is similar to the process you went through to get your original loan.
Consumer debt refinancing
Personal loans and credit card debt are two of the most common sources of debt in the United States. According to the latest Report on the Economic Well-Being of U.s. Households (2016), 65% of households applied for a credit card in the last 12 months. Compare that to the percentage of households who applied for an auto loan (26%), a mortgage (10%) or a student loan (9%). Credit cards are the third largest source of debt after mortgages and student loans. The average family has $8,733 in credit card debt.
Debt refinancing involves moving loans or credit card balances from accounts with a high interest rate to one with a lower rate and better terms.
When done right, debt consolidation can help you save money in interest and repay your debt faster. For example, if you have two credit card accounts with a balance of $5,000 (23.49% APR) and $7,500 (21.49% APR) and pay it off with a 9.99% APR debt consolidation loan, you could save $5,744 in interest if you pay it off in 48 months.