What is refinancing? Refinancing is one of those often talked about concepts in the circles of finance and lending, but for some people the whole idea of refinancing can be shrouded in mystery. We believe that it doesn’t have to be and we’re going to try to explain it to you today in as simple of terms as possible. So please read on if you’ve ever wondered what does refinancing mean.
What is Refinancing?
We find that when people talk about refinancing, they are often referring to refinancing a home mortgage. But refinancing isn’t only for home loans, as most any kind of loan can be refinanced. This means that you can refinance a home or property loan, a car loan, or even a business loan. But what are the benefits of refinancing and why should you do so?
Refinancing to Save Money
The whole purpose of refinancing is to save money. You do this by effectively taking out a new loan to pay of the remainder of your original loan, and then pay off the new loan at more favourable interest rates. This may allow you to save money over the life of the new refinanced loan.
Refinancing Demystified and Simplified
Let’s go over refinancing with a simple example. Let’s say that you borrow $100 from your friend Bruce, and you agree to pay him back $130 dollars in 1 month – this is a dollar a day in interest. 10 days go by, and your other friend Chris offers to lend you $110 and for you to pay him back $120 at the end of the month. You use the $110 to pay off Bruce’s loan ($100 for the initial loan amount and $10 in interest at $1 of interest a day for 10 days). This is the power of refinancing, as now you don’t owe any money to Bruce, but you owe $120 to Chris. This saves you $10 off of the original $130 you were supposed to repay.
Refinancing in the Real World
When you take out a loan of any kind, you usually agree to repay the loan in fixed monthly payments at an interest rate that is set by the lender. But interest rates that lenders offer can be different depending on the time of your loan and the lender. Some lenders have lower interest rates than others, and economic conditions can cause lending rates to rise or fall. Right now, lending rates are at one of the lowest points in history. This means you can refinance an older loan by taking out a new loan to pay off the remainder of your existing loan and pay off this new loan and a lower interest rate. This can save you a lot of money over the life of the loan.
What is Refinancing Good for? – Advantages and Disadvantages
We’ve already mentioned the number one benefit of refinancing a loan and that being to save money. But let’s go over some additional possible advantages of refinancing.
- Reduction in the total amount of interest paid on the loan.
- Lower monthly payments for the loan.
- The possible ability to pay off the loan faster by adjusting the term of the refinanced loan.
- Changing from a variable-rate loan to a fixed-rate loan.
As you can see there are many advantages to refinancing a loan, but there some possible disadvantages.
- Refinancing has a cost in the way of lender fees.
- It’s not suitable when your home or car is worth less than how much you own.
- The savings might not be large enough to be worth it.
Discuss Refinancing with the Professionals
We hope we were able to answer the question of what does refinancing mean. As you can see, the concept of refinancing is very simple at its core, but the process of finding the best terms when refinancing a loan can be difficult. That is why you need to work with experienced professionals when refinancing. At MediPro Capital Finance, we work hard to secure home loans for health professionals. We have extensive experience in helping our clients to find the lenders with the best rates on their new loans and when refinancing a loan, and we can help you too. Contact us online or call us on 1300 375 626 today to discuss refinancing your loan.