This is a banking service that allows you to take a new loan to fully or partially repay the old one. It is also called re-crediting. It is most profitable to apply for refinancing when it is possible to reduce the rate and reduce overpayment. This is especially true for borrowers with a loan for a large amount and a long term – for example, with a mortgage.
Refinancing is also useful when you want to replace several other loans with one loan, even if you took them from different banks. Then you will not get confused about payment dates, and sometimes you will be able to reduce the total maturity of the debt or the cost of monthly payments. But check in advance with the bank that offers california cash out refinance and what maximum amount of debts it allows to refinance.
In order for you to be approved for refinancing, it is important to be a careful payer. The chances that a borrower with a bad credit history, delays, and fines will be given a new loan are extremely low. And if any bank agrees, the interest will certainly be higher than the debtor’s current loan.
When financial difficulties arise, the first thing to do is to contact your bank and ask for debt restructuring – that is, to change the terms of the current loan agreement. For example, you can ask to convert debt from foreign currency to rubles or reduce the amount of payments by increasing the maturity. Creditors often meet customers – because they are also interested in you repaying the debt.
Sometimes the current loan should be refinanced, even when payments do not cause problems. For example, if banks have started offering lower rates on new loans or you have the opportunity to apply for a preferential mortgage. With the help of refinancing, you can save on overpayment.
But first, contact your bank and tell us about your intentions. You may be offered to reduce the percentage during a restructuring – it is usually easier to arrange it than refinancing. It happens that banks make concessions – sometimes it is more profitable for them to reduce the rate than to lose a client who is ready to refinance a loan in another organization.
If your bank does not agree to change the terms of the contract, consider the option of refinancing from different creditors. But keep in mind that refinancing does not always help to save money – it is better to calculate in advance whether it will benefit your budget.
How to assess whether refinancing will be profitable?
To do this, it is necessary to compare the amount of overpayment on old and new loans.
Look at the schedule of payments on the current loan – in your personal account on the bank’s website, in the mobile application, or in the loan agreement. Estimate how much you have already paid and how much is left to pay. If you need any help, follow our clickable link.
If you have already repaid more than half of the loan, it is not a fact that refinancing will be justified even at a lower rate.
This is due to the fact that borrowers often repay the loan in equal installments (also called annuity). In this case, at the beginning of the loan term, most of the contributions go to the payment of interest, and the debt itself decreases slowly. And only in the middle of the schedule does the situation change – interest accounts for a smaller part of the contribution. As a result, the main overpayment falls at the beginning of payments. When you apply for a new loan, you will again repay mainly interest in the first months.
But if less than half of the loan has passed, refinancing can be very profitable.
When you refinance a mortgage, you need to take into account other expenses. For example, a new lender will certainly require you to reassess the pledged real estate and arrange new insurance. Specify in advance what additional services will be needed and how much you will have to pay for them.