11 Feb What to consider when refinancing
People refinance their debts for all kinds of reasons, but is refinancing right for you?
It’s really important to draw up a budget before you consider refinancing. You may find that cutting back on your un-necessary expenditure will save the need to refinance. For some who have recently entered new financial arrangements, avoiding refinancing will be a good thing. You’ll save fees on breaking any contracts.
Once you’ve analysed whether or not you should refinance it’s worth considering the interest rate that you’re paying on your current loan, are you paying a high rate or a low rate? Are you 100% sure that you’ll get a cheaper deal? If you refinance will you have exit fees that negate any savings?
Some people have multiple loans and payments. They can be hard to keep track of, however, you may not need to refinance. If that’s what you’re worried about then there are other ways to address that. You can use applications on your phone to track your budget. That will help you maintain the records of your payments. You can also set them up to go out on automatic payment and use an alarm on your phone to notify you when payments are due. That way you’ll know you have the money in your account.
Are you paying different interest rates? If you have a loan with an interest rate of 20% (normally credit cards) and a bank loan for 10%, you’re best to see if you can refinance. By saving the money on the interest, you will pay off your debt much faster than if you keep frittering away your money in interest payments. That will improve your credit rating. When you have a good credit rating, you can get easier access to finance, and at better rates, which will help you with future loans.
Some people refinance because they want to add onto their home or invest in a second property. If that’s your goal then be sure you can afford the repayments. As a guide, most lenders recommend accounting for a rate of 2 – 3 % higher than the market rates. The reason for this is that it gives you flexibility if rates rise, and that will help you if rates rise. You won’t need to worry about possible rate rises, or the risk of going into mortgage stress.
Unfortunately though, some people refinance because they can’t afford their mortgage. The best thing to do before you consider doing that is to assess if you can make cuts to your budget and other expenditure. Or can you increase your income? If you’re struggling to pay your mortgage at the current rate, then you could find that lenders are less willing to lend money, or if they do it will be at a higher rate. You could therefore end up worse off, so it’s best to conduct research or properly analyse your situation before you make the decision.
If at all you’re in doubt, then contact the Aspirus team for a consultation to see what option may be right for you.