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Refinancing

General Refinancing Topics

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General Refinancing

Refinancing is a means to reduce the monthly payments of existing financing. This frees extra money each month for additional purchases, investments, accelerated payments against the loan, or simply for saving money. Most commonly, refinancing is used for mortgages and to consolidate multiple smaller debts.

Home mortgage refinancing may be spurred by lower market interest rates. The new mortgage pays off the old mortgage and requires smaller monthly payments. If the appraised value of a property has risen sufficiently, or if enough principle has been paid against the original mortgage, the refinanced amount may be increased to give the borrower additional funds. Another aspect of refinancing loans is that the loan term may be shortened to pay off the principle quicker, or lengthened to lower the monthly payments even more. Even though refinance rates may look attractive, be aware of additional refinance costs like application fees, home inspection fees, and closing costs.

While a home is used as collateral for a mortgage, the funds from the loan may be used for other purposes, such as paying debts or making large purchases. The interest on these expenses is not typically tax deductible, but mortgage interest is tax deductible, adding value to the refinance.

Auto loan refinancing can save a lot of money. Perhaps your credit scores have improved since you first obtained the loan, or perhaps the balance has been paid down a great deal. Your interest rate and monthly payments may go down substantially. Beware of an upside down car loan, however. This is when you trade in a car that still has an outstanding balance due, then obtain new financing that includes the balance of the previous auto loan as well as the new balance. You may find yourself owing more than your current car is worth.

Student loan refinancing may also take advantage of improved - or newly established - credit scores to reduce interest rates. In addition, the lower monthly payments would fit better into the budget of students and recent graduates with lower incomes.