Is re-financing a good option?

Question

any drawbacks?

Answer 1

Drawbacks:
- incurring early repayment on the existing loan
- repayment may be extended
- getting variable interest rate (i.r.) may be worse if i.r. increases
Pros
- cash comes in instead of going to the financial institution
- loan duration may be altered
- possibly a clean slate with a new bank

General rule (subject to quantum in amount owing and that your purchase can increase in value):
Nearly all capital repaid, e.g. house.
80% pay it off to secure roof over head.

Partial repayment, e.g. 60%, refinance so that you are not cash strapped, but continue to repay gradually. This gives opportunity to place your cash else where. If your purchase increases in value, you might consider selling it to take profits.

Long way to go, e.g. 25%. You can either sell off the purchase or continue to repay, based on your estimated remaining work life. Hugh debts become a burden if there is no light at the end of the tunnel; consider taking a cheaper house for instance, one that you know you will own when you retire.

Purchases that are luxuries and do not increase in value, e.g. handphones, are just not worth it. The interest payment to financial institutions like banks, over the long run may be as good as giving money away.

Answer 2

The only way I would find refinancing a good idea is when you literally cannot pay the amount each month when you first started. Say you got a $5,000 loan and pay $300.00 per month for 2 years. At the time you signed you were able to afford this. Then under circumstances beyond your control, you can no longer make this payment. Instead of struggling to make that payment, you could refinance for a longer term but lower payment, say $175.00. The only drawback is that you would be paying more interest on that note than originally planned.

If in my case, I could not make the payments, I would refinance so that my credit would not take a beating for late payments. Then, if there comes a time when you could start making your $300 payments, pay the additional from the $175 to principal and it will be that much less interest to pay and you'll pay it off early. Most banks deal with simple interest notes and no penalty to pay early, but do double check.

Answer 3

The answer is a resounding....maybe.

Depends on your situation. Do you plan to stay in your house for a period of time, or are you going to sell it soon? Can you get a much better finance rate, and not have to pay too many points to get it? Does the current loan have a penalty built into it for early payoff which would offset any savings? Are you going to wind up with a longer term loan, so the payments are less but the interest is actually higher? Do not, repeat, do NOT get into the flex loans where you can "just pay the interest" every month. They will wind up costing you. If you are old enough to do it, you might look into a reverse mortgage, where they pay the mortgage and taxes, and you continue to live there and the house becomes theirs on your death. But be careful, there are some scams in that area of the financial world.

Sorry, I wish I could give you a yes or a no, but it does depend a lot on your needs and situation. Good luck.

Answer 4

Yes, it is if you can lower your interest rate and plan to stay in that home long enough for the amount spent for the closing costs to be worth the re-finance. About 3 years. I think. Also, there must no pentalty for paying off the loan.

Answer 5

It sure is ... especially if you get a lower interest rate. I would make sure your original loan does not have an early payoff penalty. Some banks include this clause to ensure borrowers do not re-finance their loan too soon.

Answer 6

100% depends on your situation. For cash out.....NO! For lower payment....NO. For a better rate....YES