Penalty clauses are only applicable to loans paid off prior to maturity. If a loan is paid fully upon maturity it is a new financing and not a refinancing and all terms of the prior obligation terminate when the new financing funds pay off the prior debt. If a refinanced loan has the same interest rate as previously, but a longer term it will end up with a larger total interest cost over the period of the loan and it will result in the borrower remaining in debt for many more years.
Typically, a refinanced loan will have a lower interest rate and the combination of the new, longer term period of the loan will subsequently lower the payments. A borrower should calculate the total cost of a new loan compared to the existing loan. The new loan cost will consist; the closing costs, prepayment penalties and the interest paid over the period of the new loan and it should be lower than the remaining interest that will be paid on the existing loan to see if it makes any financial sense to refinance.
To move away from unattractive interest rates. If the rates have declined and the reduced payment from the lower rates offsets the cost of refinancing within three years it is of great benefit to you. Shop around to make sure that your current mortgage lender’s offer is competitive and that you can get the lowest qualifying rate.Compare fees and closing costs because they can vary significantly among lenders.
When you refinance your mortgage to a long term loan you can increase your cash flow by reducing monthly payments although it may increase the total interest costs over the mortgage life.
Lowering the monthly loan repayment amount; financial distress that may call for increased monetary flow per month which can be achieved by reducing the amountyou give for monthly repayment and in such a situation current affordability is a very important consideration. When you have an adjustable rate mortgage and you intend to live in your house for several years beyond your first adjustment, refinancing a fixed rate loan may save you money in the long run especially in low rate environment.
The other reason for refinancing is to make use of the equity you have for other purposes. This happens in cash out refinancing and the value for the new mortgage is greater than the current mortgage and you receive the difference in cash.
You can use this money to restructure other debts, paying off high-interest rate credit card or any
other debt with lower rate of your new mortgage. This is a practical way of financing major items such as family vacation, wedding expenses and improvements in your home with the lowest interest rate possible.
The key to crunch the numbers is to make sure that you can afford the refinancing costs and the new mortgage payment. Our experts will assist in the cash out assessment. The other reason to refinance is to handle an event that is beyond your control. When it comes to refinancing, every situation is different and you should talk with your mortgage lender to see if refinancing makes sense to you.