This can be achieved by refinancing multiple loans into a single loan (especially one that has a lower interest rate than all previous loans). One of the most common examples is refinancing a 30-year mortgage to a 15-year mortgage, which typically comes with a lower interest rate, though this will most likely result in a higher monthly payment.Ĭonsolidate Debt-Managing one loan with a single payment date instead of multiple loans with multiple payment dates is much simpler. Shorten the Loan-Borrowers can potentially pay off their existing loans faster by refinancing to shorter loan terms. However, most probably, this will increase the loan term and increase the total interest to be paid. Lower Payment Amount-Borrowers struggling to meet the minimum monthly payments on a loan can refinance to a new loan with lower required monthly payments, which can help ease the financial burden. Unless accompanied with a lower interest rate, cash-out refinancing is normally expensive. However, refinancing normally requires the payment of certain fees. When enough equity has accumulated, the borrower may cash out by refinancing the loan (mostly home mortgage loans) to a higher balance. Need Cash-The balance of a loan will decrease during the payback process. This can in turn improve credit score even further if borrowers use the money saved to pay off other outstanding debts. It is also possible to refinance when a borrower's credit score improves, which may qualify them for more favorable rates. This saves money on interest costs for the borrower. Save Money-If a borrower negotiated a loan during a period of high interest rates, and interest rates have since decreased, it may be possible to refinance to a new loan with a lower interest rate.
For more information about or to do calculations involving debt, please visit the Debt Consolidation Calculator or Debt Payoff Calculator. If the replacement of debt occurs under financial distress, it is called debt restructuring instead, which is a process to reduce and renegotiate delinquent debts to improve or restore liquidity. In the case that old loans are tied to collateral (assets that guarantee loans), they can be transferred to new loans. Refinancing is more commonly associated with home mortgages, car loans, or student loans. Terms and conditions of refinancing vary widely. Loan refinancing involves taking out a new loan, usually with more favorable terms, in order to pay off an old one. Lock your refinance rate: Work with your lender to lock your interest rate when you believe it's the lowest.Ĭomplete a home appraisal: Most lenders require a home appraisal.Ĭlose your loan: Review the closing documents and disclosures, pay any applicable closing costs, and sign.Related Mortgage Calculator | Mortgage Payoff Calculator | APR Calculator Contact the lender, or find a lender to work with in your area.Īpply for a refinance: Once you apply, your lender will provide you with initial disclosures that outline the terms of the loan. Shop refinance rates: Compare different interest rates using the custom rates tool or refinance calculator above to determine if refinancing at a current rate would accomplish your refinancing goals. Select a type of mortgage refinance: You have many refinancing options, including refreshing your rate and term (rate-and-term refinance), applying more cash toward your equity (cash-in refinance), pulling money out of your home equity (cash-out refinance), or opting for a streamline refinance to lower your monthly payments. The process of refinancing will follow these typical steps: