Many homeowners choose refinancing to pay their debts off. This debt could be in the form of credit card outstanding and they usually pay it off by taking a mortgage loan that amounts to more than what they are required to repay for their home. As a result, they take the difference in the cash amount to pay off a higher interest debt.
Thus, while debt refinancing allows an individual to manage his/her repayments easily, it can cost him/her more when the rates of interest or the fee are much higher when compared to before. Also, you can caught in a debt trap if you continue to acquire more credit since more money may lead you to become an extravagant or spendthrift individual.
Here, discover the factors that must be taken into consideration when it comes to refinancing and consolidation.
Don’t Settle for Provider that Make Fake Claims:
Some refinancing service providers claim that they can pull you out from your debt situation, irrespective of the amount you owe. This is completely wrong and unrealistic and you shouldn’t be trusting such an organization. In fact, you must avoid companies that are not licensed, refuses to talk about repayments or requests you to sign any blank document. You must also stay away from those that rush into a transaction, won’t provide you with loan costs as well as the rate of interest in written before signing and makes arrangement for business loan instead of a consumer loan.
Don’t Opt for an Expensive Loan:
It is important to take the rate of interest of a new loan into account. In fact, you should also be taking other costs and fees into consideration to determine whether you have the ability to repay the new loan or not. If you feel that the fresh loan would be costlier than your existing loans then it is better that you don’t apply for a new one. It is recommended that you use a mortgage loan switching calculator to draw comparisons between the fees and interest rates of your new and existing loans.
Remember to look for other fees and costs including the penalties that you will have to pay when you choose to pay off the existing loans early. You should also check the application fee, valuation fee, stamp duty and legal fee that you will have to pay. Many lenders require you to pay these fees at the time of securing a fresh loan against your property or any other asset. Make sure you don’t switch to a new loan that has a longer duration or term. Although the rate of interest may be low, but you will end up paying more in the form of fees and interest eventually.
Look for Other Options Aside to Home and Assets:
To acquire a low rate of interest, you may think of converting the unsecured debts like personal loans and credit cards into one secured debt. Often for consolidating the debt, you may want to use an asset like your car or home etc. as the security. However, when you fail to repay the fresh loan, the bank will sell off your car or home in order to recover their losses or the money that you had once borrowed. Therefore, it always a good idea to use other assets, and not your car or home, as the security.
Consult the Mortgage Provider:
Before your choose refinancing and debt consolidation as an option, you must speak to a mortgage provider. Lenders today offer a wide range of programs that help people to repay their mortgage loans during tough times. They can assess your situation and change the loan terms as well as reduce or even pause the repayments for a couple of months.
Switch Your Home Loan:
A new home loan can save you a great deal of money in terms of fees and interest. However, before you opt for a fresh loan, don’t forget to check whether it is actually a good deal when compared to your previous loan.
Discuss With the Credit Providing Company:
In case you have to repay your debt related to credit card or any other loan, you must first consult your credit card providing company whether they are in a position to change your repayment terms or may be extend the loan. This way you won’t have to opt for refinancing and debt consolidation and you’ll be able to repay your existing loan as per your convenience.
Seek Professional Advice:
If you are not too sure about choosing refinancing as an option then you can seek professional advice from a reputed financial services providing company. They will help you to understand and plan your mortgage loan better. Their team of financial consultants are experts in offering a wide range of financial services, which can help you to understand the legal and financial aspects of acquiring a loan.
Remember, you don’t have to run into a debt again and therefore you must opt for refinancing and debt consolidation only when you are completely sure about choosing one. While, there are multiple lenders who are willing to offer you a refinancing services, but you will be awarded with a loan only when your credit score is good. In case you have made all the repayments on time and your credit position is good, then you’ll get a loan with the lowest interest rates.
Conclusion
To sum up, it is important to understand that refinancing helps to simplify your debt condition, but the end goal of refinancing should be to save money. If you are able to get a loan with low interest rates, you’ll automatically be in a position to pay off your debts faster. Also, when you choose to refinance, you will get a loan with variable or fixed interest rate and thus you must know the difference between the two to understand how the interest rates would differ.
If you are planning to choose refinancing and debt consolidation to improve your financial condition, then consult the experts at Empire Broking! As one of the leading providers of financial services in Australia, Empire Broking provides multiple solutions in the form of investor loans, home loans, investor loans, credit card loans and more.
Reference
https://www.thebalance.com/debt-consolidation-vs-refinancing-4066810
https://moneysmart.gov.au/managing-debt/debt-consolidation-and-refinancing