Sunday, August 1, 2021

When does Refinancing make sense?

A lot of people aren’t aware of refinancing and the huge opportunity they are missing. One reason, maybe because lenders are not explaining its benefit to the borrowers. Oftentimes, refinancing is not being discussed before or during the contract signing of a loan. It might be because when a borrower refinances the loan, it means a decrease in the payment and less collection on the part of the lender. While it is true that only a few lenders are truly concerned of the welfare of their borrowers, there are still a lot of borrowers who are not going through it because of burnout – hassle and a lot of paper works required when refinancing.

But because it is pandemic, there’s an ongoing economic recession in most parts of the world, and a lot of people had lost their jobs or shutdown their businesses, anything that would mean “savings” must be grabbed. 

This pandemic has caused the interest rates to fall, as low as 2.5%. Data from S&P Global shows that the average interest rate for the 30-year fixed mortgage is now at 2.98%. Interest rates today are the lowest since 2000, and for those who availed a 30-year loan contract for home mortgages, this could be the perfect timing.

What is Refinance or refinancing?

Refi, short term for refinancing means replacing an existing debt obligation with another but under different terms. Usually, it is a loan or mortgage where the terms of an existing credit agreement is revised and replaced, which is favorable to a borrower’s interest rate, payment schedule, and/or other terms outlined in the contract.

Refinance becomes in demand nowadays because there is a substantial change in the interest-rate giving the borrower a potential savings on debt payments from a new agreement. Since our current pandemic situation and global downturn caused the interest rates to fall at an all-time low, now is the best time to refinance mortgage loans, car loans, student loans, and the likes. If you are new into refinancing, try this free online mortgage refinance calculator to see how much you will save.

The calculator comes in handy anytime and anywhere you go. It’s so easy to use and to understand results. You simply have to fill up the three parts, first is the information of your Old Mortgage :

Home price – the actual price of the property
Down payment – the initial amount you paid, the portion you paid in the early stae of a purchase
Original loan amount –no need to fill in, calculated automatically
Original APR – the interest rate applied to the loan, higher than today’s interest rate
Original loan term – length of loan in years
Time left on original – time left to pay the loan in months

Second portion, you need to inquire with your lender - the Mortgage Refinance Terms:

New loan amount
New loan term in years
New interest rate (APR %)

Last which you also need to work and discuss together with your lender - the Refinancing Closing Costs:

Discount Points
Origination Points
Other Closing Costs

The results will show the comparison of your old loan versus your new loan where you will clearly see that the monthly payments had decreased significantly. It will also show how much your total savings would be. It is also a good thing that the closing cost is shown in the result, so you can prepare to save for it before you apply for refinancing.

The big savings shown in calculator clearly proves that refinancing really makes sense at this point in time. By refinancing, you can also acquire an influx of cash for a serious financial need.

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