Loyalty or Bottom Line: Does it Pay to Switch your Loan to a Better Deal?

by Darwin on October 3, 2016

For many homeowners and people with long-term loans, the question arises if it’d be better to refinance and remortgage than stick it out on the loans full term time. Remortgaging is constantly changing and homeowners could consider a new deal that would be beneficial to them.


The question is when does it pay to switch your loan. The answer can go both ways, so it’s important to see what existing deals are intact, what can be offered and how they then can be taken advantage of. The best deal is going to be the one that helps you become more financially better off in the long run.


Making the Switch


During times of economic change or positive uptrends, interest rates fall. This benefits lenders and subsequently those being lent to. During a time of historically low interest rates it’s best to refinance and get a rate far below what you signed into earlier. The amount of interest money that can be saved over a 30-year fixed rate loan could tens of thousands.


Along with a better interest rate, the duration of a loan period can be fixed as well. Nobody wants to be paying the same loan on a home until they’re much older than they first started. The first couple years of a loan can be entirely made out of interest payments. You can either shorten that loan and get it paid off quicker or refinance it into as similarly paced long-term loan to use that for tax deductions and have money to invest in other areas. Getting new home loans are easy and there are lenders out there with the capability to do it.


Refinancing also allows for the consolidation of other loans. By combining multiple lines of credit that could have unjustly high interest rates could be a lifesaver. There’s only going to be one monthly payment now and other loans are paid off. Having one loan to worry about brings about a peace of mind.


Incentives for Staying


There are some downsides and potential risks in making the switch towards refinancing. Many times there will be a certain amount of fees that can cut into any money saved through lower interest rates. Some mortgages are also considered non-recourse loans, that mean if you don’t pay the bank it can foreclose the house, but your other assets are fine. Refinanced loans on the other hand are usually considered recourse products. If the sale of your house doesn’t cover the debt, then other assets are up for grabs to be taken away.


Few people are able to meet the strict qualifications in getting a new refinanced loan. This is due to the more stringent nature of home lending due to the housing crash. It’s always a good thing to know what your credit score is and how you can increase it to get better loan deals. Look into any penalties your loan may have for paying it off early, this also includes refinancing.


Weighing the Options


If you are considering refinancing then it’s important to do the right calculations between the potential fees associated with a new loan, leaving a loan and the difference against interest saved. Many times the benefits won’t be seen until a couple years down the line, and this needs to be taken into account. There’s going to be a lot of paperwork involved that means a long loan application and complete review of all financials and employment.


The loan process has become more intense than the once lenient days because of the financial credit crisis. So it’s an understandable reaction and measure to ensure these things don’t get out of hand again.


Making the Decision


Deciding to stay or refinance is at the end up to your personal decision. But all things need to be taken into account. These include the process that goes into refinancing a new loan, checking out all necessary fees weighed up against interest saved. A switch to a new loan giver can have multiple new benefits aside from the money saved, like lengthening or shortening the loan duration. Whatever you as the lender are trying to get out of the deal needs to be considered for your personal benefit.


If the decision is decided to completely make the switch then there are certain things to look for on the paperwork. Make sure al terms, agreements and fees are listed. Once that’s been settled you’ll be ready to refinance.


Logan Sykes worked in the insurance industry for many years. Now retired, he finds that he enjoys sharing his knowledge, and that people actually find his knowledge useful, so spends a couple of hours each week writing articles and answering questions online.

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