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Debt Consolidation

Refinancing Explained

25th May 2007

Refinancing involves taking out a secured loan to replace an existing loan. This is normally done against the same asset of which the most common is on a home mortgage. There are many reasons why refinancing is considered raging from reducing interest rates to paying off debts to refinancing from a variable-rate to a fixed-rate loan. Refinancing can also be used to lessen the repayment amount by opting to pay a longer term loan. The refinancing option also allows you to liquidate equity amassed in a property during the period of title or ownership.

Financial Intelligence When looking at refinancing as an option certain factors need to be taken into consideration before you apply especially for home loan refinancing. Questions you need to ask yourself include:

Mortgage refinancing which is the most common form of consumer refinancing has its advantages and likewise risks. There are different types of mortgage loans and each one serves a different purpose. It is of utmost importance for you to understand what type of loan best suits your situation and needs. An advantage of mortgage refinancing and a common reason why most consumers opt for it is because with interest rates shifting up and down your mortgage repayments follow suit on an adjustable-rate loan based on the prime rate used to calculate your repayment.

By refinancing your mortgage loan from an adjustable-rate loan into a fixed-rate loan, the risks of the interest rates going higher and sending your repayment through the roof is removed. In as much as there are advantages there are also risks associated with refinancing. One of the risks of mortgage refinancing is that although payments become lower, the total interest over the life of the loan will be larger thus exposing the borrower to greater risks than those on the existing home loan. So remember that although mortgage refinancing is an option, you need to fully understand the fundamentals involved before making a final decision.

"Lack of money is the root of all evil."
- George Bernard Shaw

Comments (11):

Lyndon Says: I tried to refinance my mortgage for paying off my debts because I wanted to consolidate and the consolidator advised me not to because she said my situation was not as bad as that then we managed to work it out without refinancing. Cost me less in the end | 05.25.2007 |

Christina Says: My mortgage is only three years old and I was advised by my bank not to refinance. Now I see that if I had, I'd be paying a lot more in interest | 05.25.2007 |

Sandra Says: Thanks for the post, I am new home loans and refinancing so I needed this to weigh my options because I wanted to renovate | 05.25.2007 |

Andrew Says: Wow Kev, you're really educating the masses thanks! | 05.25.2007 |

Fally Says: Thanks for the info. Good post | 05.25.2007 |

Penny Says: When I got my mortgage the lady that helped me never explained to me my options. I didn't even know there are different types of home loans until now. Thanks. | 05.25.2007 |

Levy Says: Sometimes if you don't know the information the bank will not willingly give it to you because the more ignorant you are, the more money they make off you | 05.25.2007 |

Phil Says: Levy you are so right. Until recently I was not very clued up on financial matters but doing my research and reading blogs like this one I surprised my banker with a thing or two now he treads carefully with me. Amazing what a little knowledge can do | 05.25.2007 |

Rob Says: My financial adviser also talked to me about refinancing and suggested the mortgage refinance option. Thanks for the info | 05.25.2007 |

Tara Says: Funny how financial institutions "forget" to mention costs. I guess that's why they are hidden costs because no one ever told me about the real refinancing costs | 05.25.2007 |

Mario Says: Great info thanks | 05.25.2007 |

 

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