How to Know If You need to Refinance a Home or Car Loan

Refinancing can be a tricky topic for many homes and car owners. Anything you’ve purchased on borrowed capital can theoretically be refinanced in some way or another, but finding the right avenue for creating new financial freedom with the right refinancing opportunity is a little more complicated than the average balance transfer.

Yet refinancing works in a manner that resembles the balance transfer model that credit card providers have created. Essentially, the opportunity to refinance debt is simply the origination of a new loan with updated terms. This funding covers the outstanding debt that you already have and is used to pay off the old loan in order to take advantage of the terms of the new loan. Homeowners and drivers should always remain vigilant when it comes to opportunities to reduce their debt load with these types of offers.

Refinancing offers an agile solution to a static problem.

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Homeowners and car owners face the same static issue all over the United States. High APRs, or yearly interest rate calculations, and sky-high loan amounts that are necessary to finance these expensive purchases can quickly dig a hole that’s hard to climb back out of for the average American borrower. A higher down payment is a great start, and boosting your monthly payment above the minimum required by your lender can erode the debt faster.

But borrowers still face an uphill battle against interest rates that are typically much higher than the feasible return on any investment assets you may be holding to hedge against the inflation of your family’s debt burden (the U.S. credit card average APR is 20.29%). While the stock market has been on a tear recently, even the best investors out there won’t average better than around 10% year over year to match pace with the five to ten-year car loan or 30-year mortgage you owe on your vehicle or home’s initial purchase price.

The option to refinance can help you tap into the mojo of the market. For instance, after the coronavirus pandemic sent shockwaves through federal reserves around the world, interest rates fell like a stone through water. While this change means that banks are paying virtually nothing to their CD and bondholders these days, it also provides rock bottom refinancing options to borrowers looking to capitalize on market movements.

The ability to renegotiate the terms of your remaining debt on these fixtures of the modern world offers an agile solution to a largely immobile issue that borrowers in the U.S. and all around the world face every year. Just like a cargo management system, this innovative solution to an age-old sticking point has made for a fast-acting response to financial woes and brought life back into a hemorrhaging cash flow for many homeowners and drivers.

Refinancing provides financial power to your home or car loan repayment schedule.

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Your home or auto loan can be refinanced practically whenever you want at the current market rate, for a simple origination fee, of course. Using a car loan calculator, many borrowers find that refinancing can save thousands over the remaining years of monthly payments still to come. Your car is one of the most expensive purchases that you will make, so taking the time to understand your current repayment obligation and any reductions that you can build into these terms is a great move for single drivers or families with multiple cars parked on the driveway.

The same is true for your home loan. With a single point reduction in the interest rate on a home, for instance, you can expect to net a savings of over $10,000, on average. Home loan refinancing is a huge industry for this reason. Millions of people all over the world weigh their options for refinancing on a regular basis because the opportunity to build in this immediate savings that will last throughout the remaining years on your mortgage is simply too good to pass up.

Refinancing options are more readily available to those with great credit reports.

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A boost to your credit score is always something that a homeowner or should be working to achieve. But an excellent credit score is most important for those who are planning to approach their financial institution for a new home or car loan. Locking in great discounts requires you to enter into a new mortgage or personal loan negotiation with the upper hand.

Market rates may be spiraling, but a refinancing opportunity is the same as borrowing a fresh loan and requires the same kinds of credit report checks and personal finance disclosures. Paying off high-interest debts first and prioritizing savings in the months leading up to a new loan application is a great way to give your credit the energy it needs to stand as a stunning representation of your creditworthiness.

Refinancing your loans is a great way to lock in savings for your future cash flow. Reducing the interest rate that you are on the hook to pay can save you tons of money over the long term, so make sure you are always looking into current market rates for your opportunity to pounce.

Caroline Miller

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