Regrettably, it is not possible to transfer every debt onto a promotional credit card or personal loan. Refinancing is similar to consolidation in that it involves substituting one loan with another.
By refinancing, you have the opportunity to settle the initial loan by acquiring a new loan with improved conditions. This may entail a lower interest rate, a shorter repayment period, or a switch from an adjustable rate to a fixed rate.
When it comes to refinancing, you have a fantastic opportunity to reduce the interest burden on your existing debts. Just like the housing market, mortgage interest rates are subject to fluctuations over time. Back in the 1970s, fixed-rate home loans hovered between seven and eight percent, but a decade later in the 1980s, the average rate skyrocketed to a staggering 18 percent. However, in 2012, there was a historic drop, with rates hitting a middling 3.31 percent.
To put things into perspective, let’s consider the impact of interest rates on a $200,000 mortgage, highlighting the monthly payment variations:
- At 18 percent, your monthly payment would be $3,014.
- At 7.5 percent, your monthly payment would be $1,398.
- At 3.5 percent, your monthly payment would be $898.
To maximize your savings, it’s wise to wait for favorable refinance rates before initiating the process. Another option to explore is refinancing for a shorter term, which often comes with even lower interest rates. Although it’s important to note that opting for a shorter term may result in higher monthly obligations.
For example, if you have a $200,000 mortgage, here’s how the monthly payments would look:
- With a 30-year period at 3.5 percent, your monthly payment would be $898.
- With a 20-year period at 3.2 percent, your monthly payment would be $1,129.
- With a 15-year period at 3 percent, your monthly payment would be $1,381.
Keep in mind that there may be fees associated with setting up a new mortgage, so it’s crucial to ensure that the interest rate or terms justify the cost. As a general guideline, refinancing becomes a worthwhile consideration if you can secure a rate reduction of at least two percent.
By Admin –
