The situation on the financial market is changing dynamically. The mortgage contract taken a few years ago may not be an attractive solution at the moment. So what if you discovered that banks are lending money today on much better terms? A refinancing loan comes in handy.
A refinancing loan is a solution consisting in incurring a new obligation to repay the currently held loan. This product was created for consumers who are not satisfied with the current terms of the mortgage loan and would like to change the loan rules. This option can therefore be used only by people who, with the help of the bank, financed the purchase of a house or flat and clients who received a loan to renovate their property.
What benefits does a refinancing loan give you?
Mortgage offers often differ in terms of elements such as interest or commission. These factors affect the cost of your commitment and the amount of the monthly installment. If you took out a mortgage a few or a dozen years ago, probably the interest rate imposed by the banks was much higher than today. Let us assume that this is how it happened.
In view of the above, if you had borrowed the outstanding amount of the liability today, the installment would probably be much lower. By opting for a refinanced loan, you can reduce the monthly cost of servicing your liability, and thus save on the total cost of the loan. Thus, you gain funds that you can use for any other purpose you choose.
How to choose a good refinancing loan?
If you are afflicted by current mortgage terms, the refinancing option may seem very tempting. However, before you reach for this product, you should carefully check the fees that await you in connection with the “transfer” of the loan. And these costs include:
- commission for a bank where you use refinancing,
- fees related to early repayment of the original loan,
- insurance costs of a new loan,
- formal changes, e.g. modifications in the land and mortgage registers
When comparing refinance credit offers, include all of the above parameters. It may turn out that after calculating the “additional” costs refinancing will not be as profitable as you thought so far, and you will only fall “from the rain into the gutter”.
Refinancing is not a consolidation!
A refinancing loan is often confused with the option of consolidating liabilities. Indeed, both these solutions are closely related. In the case of consolidation, however, we will have to deal with a combination of several different obligations in order to lower the monthly installment. When deciding on refinancing, our commitment must be strictly related to the mortgage.
In many cases, refinancing loans can bring relief to the home budget. However, this is not a solution for everyone. If, after analyzing refinancing costs, you think that this is not a good thing in your case, you can try to renegotiate the terms of the agreement with the existing bank. Of course, this will not always be a positive response from the current lender. When you try to do nothing, however, you do not lose, and you can save a lot of money.