Refinancing is a term in the finance industry that refers to the process
of paying off a current or present loan with a second loan. If the situation is
right, refinancing can be very beneficial for those who engage in it. So how do
you know when the situation is right for refinancing?
First thing's first, refinance only works if the interest rates are low.
If they aren't, then refinancing is out of the question. The goal is to save
you lots of money which you would have used to pay off your monthly recurring
bills on your current loan. With refinancing, there is the possibility that
this monthly repayment amount will be reduced since the rates would be
However, interest rates are very fickle. They vary in accordance with
the changing economy. So it can therefore be assumed that interest rates are
never low for long periods and neither are they high for long durations of
time. Because of this inherent flexibility of interest rates, refinancing may
not always be beneficial to people. For home owners with second mortgages,
mortgage refinancing may backfire. The same goes for those people with a lot of
debt or those having trouble paying their bills on time. By refinancing, they
may end up paying more than when they stick to the loan they already have.
What is the best way to measure costs and gains from refinancing?
Now, that you have learned when the best time for refinancing is, which
is when interest rates are low, the next question that you would need to find
the answer to is: What is the best way to measure costs and gains from
As stated earlier, there are advantages and disadvantages to
refinancing. The trick is to have foreknowledge of what you're in for. For
some, the best method to find out what the gains are in refinancing is by
Compare all costs of your current loan and a new mortgage over a future
period. Since the loan period may vary according to how steadfast you are in
paying your bills, just make the best guess as to how long you will have the
new mortgage. If the total costs are lower with the new mortgage, then you
How to Avoid Mistakes in Refinancing
To be sure, the benefits of refinancing are astounding, provided that
the situation is ripe for a mortgage refinance. However, because of these
perceived great benefits of refinancing, many people have the misconception
that refinancing won't cost them money. Just for the record: Refinance is just
like any other loan and of course, it will cost you money. What makes it stand
out is the fact that it can cost you less compared to most other loans.
Tony Forster has a keen interest in living debt free having been "up to his ears" before realizing the need to take control. He has compiled an online financial article resource at