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.
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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 –