Posted by Jennifer Quilter
This is a good question to ask, and one that seems to be rarely explained. It’s actually very simple, the financial term refinancing means to finance again, to pay off your original loan with a new one.
It’s very important to understand how this works because it will affect your decision to refinance or not.
When you have a new loan you will have new terms. Depending on what your goals are, you could find a fixed interest rate, a lower interest rate, lower monthly payments, paying it off sooner or stretching it out. A whole new start gives a whole new set of opporotunities. Because you have already paid some on your original loan your new one will be for less money, which also gives you more options.
If you are thinking about refinancing something must have changed from the time you originally got the loan. This could be an improved credit score, a change in employment, a new financial goal-whatever it is, it is good to consider this when planning and what it means you’re looking for in a loan.
In different circumstances refinancing means different things for diffent people. For instance, students may want to refinance their student loans because during the time they were students they have built up a better credit score and want to now obtain better rates and a payment plan that works with their post-graduation life.
Homeowners may have originally been grateful when they signed up for their loan, but now may be wondering if they got the best deal? Or now they are regretting their adjustable interest rate and are looking for a fixed rate.
Some may also be looking to fund home improvement projects. In this case, you look for an amount greater than what you currently owe, the extra going toward the improvement project.
It is important to keep in mind that whatever closing costs apply to your original loan will still apply and will have to be dealt with when moving on.
Whatever your situation, the answer basically remains the same. What does the financial term refinancing mean? A new start.