Understanding Refinance Loans: How to Financially Benefit from Refinancing Your Loan

When it comes time to consider refinancing your current loan, there are many questions and concerns that arise. We understand and want to provide you with some of the basics of refinance loans and how to financially benefit from refinancing your loan. The goal is to help you make an informed decision.

What is Refinance?

Refinancing involves replacing an existing loan with a new one that has better terms, often a lower interest rate. The primary purpose of refinancing is to help you reduce your monthly payments, but there are also other reasons to consider refinancing, such as lowering the total cost of the loan, converting an adjustable rate loan to a fixed-rate loan, and consolidating multiple loans.

How Does Refinance Work?

When you refinance your loan, your lender pays off your existing loan and replaces it with a new loan, with the new lender charging you a new interest rate and terms. You can usually choose from two types of refinancing options, outright refinancing or streamline refinancing.

Outright Refinancing

Outright refinancing gives you the opportunity to significantly reduce your loan payments, as well as the total cost of the loan, by taking advantage of a lower interest rate. It also provides you with the opportunity to convert an adjustable rate mortgage (ARM) to a fixed rate, or consolidate multiple loans into one loan.

Streamline Refinancing

The two main types of streamline refinancing are the FHA streamline refinance and the VA streamline refinance. This type of refinancing requires you to have already qualified for a loan from the same lender in the past. This type of loan eliminates the need for an appraisal and allows for a quicker, simpler refinancing process.

Financial Benefits of Refinancing

Refinancing is rarely a bad idea. It offers several benefits, which can add up to significant financial gains. Here are some of the benefits that you will gain from refinancing your loan:

• Lower Interest Rate – Since mortgage interest rates drop periodically, refinance loans can be used to take advantage of this and reduce the interest rate on your mortgage. This can result in considerable savings, since a lower interest rate means lower monthly payments.
• Reduced Payment Amount – Refinancing your loan can also lower your monthly payments directly, through extending the loan term or by improving the loan’s terms.
• Converting Adjustable Rate Mortgage – When you refinance your ARM to a fixed-rate loan, you can rest easy knowing that your payments won’t change if interest rates go up.
• Eliminating Extra Fees – Another advantage of refinancing is that you can get rid of unwanted fees. For example, if you got your original loan at a higher rate, refinancing can help you reduce your loan amount and eliminate those extra fees.

Wrap Up

Refinancing can offer great financial incentives, but it’s important for you to understand your loan options and the potential benefits before advancing. Make sure that you do your due diligence and research before refinancing a loan. We hope that this article has provided you insight into the financial benefits of refinancing your loan and the process of how it works.