Refinancing a loan is meant to fulfill a specific financial or personal need. It is also meant to create additional financial benefits. Five benefits of refinancing a loan can include debt consolidation, cash infusion, reducing the length of your mortgage, reducing your monthly payments and changing your interest rate and type.
Debt consolidation involves paying off multiple revolving and/or installment debts by combining their combined total balance into one new loan amount. This process is done on home mortgages and personal loans. The goal of debt consolidation is to have one lower monthly payment at a lower APR than what was being paid in combination before.
Sometimes extra cash is needed. Perhaps a dream vacation is on the calendar. Perhaps a child moved across the country for a job and more traveling is expected. Refinancing a loan can achieve this. Refinancing a loan can also reduce monthly payments, which provides a monthly cash infusion for more financial breathing room.
Reducing the Length of Your Mortgage
Many mortgages are financed for thirty-year terms. Mortgages at this length offer more affordable monthly payments but sometimes circumstances change for the better. Interest rates can drop and income/salaries can increase.
Refinancing your mortgage for fifteen years can increase your immediate monthly payments but save money in finance charges in the long run.
Reducing Your Monthly Payments
Sometimes better interest rates become available making it worth refinancing to reduce your monthly payments. Other times your credit rating and FICO score improve, qualifying you for better money-saving rates and terms.
Regardless of the cause or reason, refinancing at a better interest rate can reduce your monthly payments and save money in the short term. Another way of reducing your monthly payments is to refinance a fifteen-year mortgage for thirty years.
On the next slide, learn about the last benefit of refinancing your loan, and who the best lenders are in 2023.