How Do I Refinance: loan types

Types of Loans

Refinancing means paying off old debts by getting a new loan from a new or existing lender. Refinancing can be an appropriate way to resolve financial problems.

Home Loans

A refinance loan allows you to reconfigure your budget by obtaining a lower interest rate and/or providing access to the equity that's available in your home. Refinancing or restructuring your debt can be beneficial but can turn into a no-win situation if not done properly. When refinancing your home loan make sure you know exactly what you are getting in to. Go over every detail of the loan prior to signing any documents. Use the Refinance Checklist to ensure that all important questions are answered before finalizing the deal. Being well equipped and knowledgeable about your financial situation can save you tons of money in the long and short run. Be confident that a mortgage refinance is best for your current financial situation and appropriate according to current market trends.

Auto Loans

Only a handful of lenders refinance car loans, and the rates are sometimes higher than new-car interest rates. The interest rate on the new auto loan should be substantially lower than the interest rate on the old loan to make the refinance worthwhile. There are other reasons why one would want to refinance a car loan, for instance to remove a cosigners name. Whatever the case, be sure you are comfortable with the type of loan you are getting and the monthly payments to come.

Consider refinancing your home to pay-off car loans or credit cards, only if you are in a good financial situation, not in danger of losing your home, or if refinancing is beneficial from a tax perspective. Home Equity Loan rates are most times lower and the interest up to $100,000 in home-equity debt is tax deductible. Be careful of fees and of spreading out your loan for a much longer period of time because you may end up paying a great deal more for the vehicle in the long run in exchange for lower monthly payments. Do be certain that the new rate actually remains lower than your existing rate, and that it is not a rate that will increase after an introductory period.

Credit Cards

Credit Cards are a form of unsecured debt. Refinancing an unsecured loan into a secured loan puts you at risk of losing the property that you have put up as collateral. Therefore, pulling money from your home to pay off unsecured debts can be beneficial if done correctly but can be detrimental if you can’t make the mortgage payments.

Usually if you have a good longstanding relationship with your creditor you are in a position to negotiate your interest rate. You can request a lower interest rate from your credit card bank or even a credit line increase so that your balance remains way below your credit limit, which helps your credit score. A balance transfer is another alternative but be aware of varying fees and refinance costs associated with this transaction. In any financial situation it is important to make smart moves and maintain a responsible credit history.

Student Loans

Refinancing student loans can be a major cost saver. Instead of making payments to several different lenders you can consolidate multiple loans into one loan. Refinancing student loans into a fixed rate loan can also be beneficial so that monthly payments remain stable for the life of the loan.

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