After that i lend him the 2 grand and he agrees to pay me back in 1 years time with interest of 3% spread over the 1 year,so each month he pays me a small portion of the 2 grand.So in total he now owes me 2000 + 3%= $2060.6 months down the line, hes having difficulty paying me back monthly portions.He still owes me half the amount $1030.He approaches his rich friend Barnie for a loan.Barnie has alot of money in his pocket just sitting there.Its not earning him anything,its just lying idle in his pocket
Difference between Barnie and me is that Barnie agrees to charge Dick 2.5% interest instead of 3% over a period of 1 year.Dick takes a loan of $1030 from Barnie and clears me off totally with interest. Im happy.Dick now has an easy loan that he can pay at lower interest and an extra 6 months to clear it off too.Dick is happy.Barnie now is earning interest on his money that was lying idle in his pocket.Barnies’ happy.
Most people take home loans early out in life to buy a home that lasts for over 30 years.Somewhere down the line,they take another loan to clear out the first loan,at a lower interest rate.This decreases their monthly payments towards the loan.IT will take a good 3 years after your refinance starts to realize and “feel” the benefits of refinance,just as a large corporation pumps in alot of money to start a new venture and only breaks even after 10 years.
Advantages of refinancing your home loan include:
1.Lower rate of interest.Almost 1.5-2% decrease in the interest rates.adjusted that over a 10 year period translates to huge savings
2.Refinance allows you to increase the tenure of your loan,however i nthis case you will end up paying more interest as interest and tenure are inversely proportional.
3.Change in interest from floating or variable(ARM) to fixed rate.This is essentially useful for people who want a constant monthly installment instead of one that keep changing.
Costs associated with refinancing
When you foreclose your current home loan and apply for a new loan against your house from a new lender,there will be charges at both ends- closing and clearing out your previous loan and starting a new one.There will be closing fees and any foreclosure or prepayment fees.The new home loan would require application fees,title insurance,mortgage charges and appraisal fees.The total of all these fees would generally add upto about 5% of your outstanding amount left on your old loan.Which means,for example,if you had 10,000 left on your loan before you went for refinance,the costs you would have to bear to refinance would amount to about $500 approximately give or take.
Current Refinance rates
Home refinance rates currently by most lenders is about 2.99% for a 15 year period.If you increase the duration,the interest rate will will increase,but your monthly payout will decrease,but on the whole at the end of the loan period you would have paid a more substantial amount than the principal amount this way.
Similar to home refinance,your auto loan can also be refinanced in the same way.A new auto loan would cost you about 2.99%.If you chose to refinance it,rates are 3.69% for 2-4 years and 4.19% for 4 to 6 years.
Cash out refinance
This is a type of refinance option wherein you borrow a refinance amount more than the outstanding balance and receive that potion in cash.IF for example you have $10,000 left on your loan when you want to go in for refinance,you apply for a cash out refinance wherein the new lender gives you $15,000 instead of $10,000.that extra $5000 you will receive upfront in cash,and the rest $10,000 will refinance your previous loan.