Consumer loans are a topic that pervades our society as a whole, although often we may not realize it on a conscious level. Think about it, though – when was the last time that you were able to buy a house or a car without needing to take out a respective loan for them? For most of us, that’s just not something that is within reach.
So, it’s no surprise to me that one of the most common types of loans are mortgages. Looking at statistics from across the world, they’re probably the most omnipresent (besides perhaps student loans, which make up a huge chunk of the debt in North America and a few other continents). Why is that, though?
Well, the fact of the matter is that housing prices have gone up a lot in the past several decades. You can see evidence of that here, https://fred.stlouisfed.org/series/ASPUS, which offers some interesting statistics on the matter. In addition to that, there aren’t many people who are building their own homes from the ground up anymore. Together, that’s a cocktail for more and more people needing to take out mortgages.
Now, although most people do end up having one at some point during their adult lives, I don’t want to give the impression that they come without risks. They absolutely do, just like most types of loans that are out there. However, most consumers have decided that it’s well worth it.
What are Mortgages, anyway?
In order to get a better idea of what to expect from refinancing one, it’s probably a good idea to first cover the basics. A mortgage is a type of secured loan, which means that it includes collateral. For anyone unfamiliar with the term, it just means that it is something that the lender is able to take if you are unable to make your repayments. Pretty simple, right?
In specific, the collateral for this type is the property that the loan is used to pay for. Now, the bank or other financial institution doesn’t actually cover the entire cost. The borrower is always going to be responsible for the downpayment on the property, and then the rest is able to be covered by a mortgage. So, do keep that in mind as you select a home to try to buy.
There are a few different types of them, which you can find more information about on this page. The first are commercial mortgages, which I won’t go too in-depth on since they’re largely for business properties. For residential ones, though, that’s what most of us are already familiar with.
Obviously, they’re the ones that are intended to finance individual consumers who are buying homes. Rather than properties that are used for commercial or industrial purposes, they’re meant to be residencies. While the differences might seem like a no-brainer, I still think it’s a good idea to distinguish between which you are talking about.
The final one is related to the residential ones, but they’re known as refinancing mortgages. They’re the main focus of today’s article, seeing as they work a bit differently. Basically, a homeowner is borrowing money and putting up a property that they already own up as collateral. This could be to change the terms of your previous mortgage, and that’s usually the purpose of them.
What is Refinancing and How Does it Work?
In order to understand how this works with mortgages, we should probably tackle it in general first. To put it simply, it’s just when you alter or revise the contract that you have with your lender regarding a specific credit agreement. A few things could be the target of the changes.
Usually, it involves the monthly repayment plan that you currently have, or the interest rate that you are being charged at the moment. Mortgages are a very long-term type of credit agreement, and it’s easy to forget that over time, interest rates will change. That means that eventually, you could end up wanting to revise your current contract to account for the lower national/international average percentages.
Now, you can check out refinansiere.net – med sikkerhet to get more details on how it works specifically in relation to mortgages. It is a bit more complex with them since an entire property is on the line rather than just some money (I say “just” while relatively speaking, seeing as I know cash is quite important to pretty much everyone).
As far as the most important part of it is that you’re changing that initial agreement into something that will be better for you than what you started out with. I think that a lot of people end up falling for the trap of wanting to make an adjustment to it but end up getting themselves a worse deal.
Clearly, that’s really not the point of trying to refinance. So, if you’re uncertain about what to expect or how to negotiate, it may not be a bad idea to consult with a financial advisor of some sort. Some banks and online lenders even include that service on their websites, so take advantage of that when you see it.
Of course, there are a few other things to be aware of when you’re going to refinance a mortgage in particular. You have to be careful to pay attention to whether or not the lender is trying to totally reset the time period of the mortgage, keep it the same, or just add a few years on to what you currently have. While it may not seem like the biggest deal, it can actually have a huge impact on your life going forward.
No one wants to be stuck making repayments for even longer than they had initially agreed, after all. In addition to that, there are some disparities that we can see between the different demographics of people who apply for both regular mortgages and refinancing ones that are somewhat startling (and quite depressing). That is always something to keep in mind.
Is Refinancing Worth the Effort?
Undeniably, whenever you are applying for a sort of credit agreement, it is going to take some time, energy, and effort. Borrowers have to put in a lot of work to look appealing and trustworthy to lenders, so it’s only natural to question whether or not this sort of thing is going to be worth it. Honestly, I’m going to give an answer that might seem wishy-washy and annoying at first: it really depends on the circumstances.
When I say “it depends on the circumstances,” what I mean is that it’ll depend on what sort of changes you’re making to your original contract. For instance, a .00001% reduction in your interest rate would probably just be a waste of time on your part, considering all of the paperwork that goes into applying for loans, which you can read about here: https://www.sba.gov/partners/lenders/7a-loan-program/types-7a-loans.
However, if you’re aiming for a significant reduction or a change to your monthly repayment schedule, then yeah – it probably is going to be worthwhile. Additionally, if it’s some sort of emergency in which you really need to make revisions, then it’s something that you should pursue. Even if it’s a small alteration in those circumstances, anything can help.
Hopefully, my answer makes a bit more sense now. It’s going to be on the borrower to decide, ultimately, whether or not they want to give it a try. Something else that you might find of interest is that if your current lender is not willing to consider refinancing, you can always move to another one.
When you do that, essentially the new lender is “buying out” the old loan so that they will be your creditor instead. Again, though, it’s important to ensure that you’re getting better terms when you do this. If not, then it’s kind of a waste, unless your previous lender was like…the worst you’ve ever worked with. In that case, it might be fair to move just on those grounds.
For anyone who does decide to move forward with a refinancing mortgage, hopefully this guide has helped you get a better understanding of how they operate and what some of the benefits can be. I know that finances can be really difficult to talk about, let alone to fully understand, but it’s worth reading more on.