Refinance Your Loans and Save
Lower Interest Rates and Decreased Costs
With a historically low rate environment, now may be the perfect time to refinance your loans! Refinancing a loan can help you to potentially save money by replacing the terms of an existing loan with a revised loan that may offer you better terms. For many people, refinancing a loan can be a beneficial decision as it can lead to lower interest rates and a reduced overall cost. Additionally, refinancing may lower your monthly payments and allow you to extend the life of your loan.
When people think of refinancing, here are the loans that usually come to mind:
- Credit card
Refinancing Your Car
While refinancing your auto, remember:
Refinancing your car can be a simple process. First, you need to apply for a new loan, you can apply for refinancing through the Credit Union using the online auto loan application. If you are approved for the loan, there are just a few steps to the refinancing process. First, your new lender will send you a check that you can use to pay off your old loan. Then, you will begin to pay the new lender under your newly agreed upon loan terms. Usually, the costs to refinance a car loan are quite low— but make sure that you understand your new loan terms and any fees that you may incur before you sign for the new loan.When it comes to auto loans, it may make sense to refinance during the first half of your loan, as that is when you are paying the most interest. Refinancing makes less sense during the latter part of your loan, when your monthly payments are largely going to paying down the principle.
Refinancing Your Mortgage
Refinancing a mortgage is a more complicated process than refinancing a car, and is often a more difficult decision. Some considerations before you refinance your mortgage are:
- Your current interest rates
- The length of time you expect to stay in your home
- Your current mortgage type
- The number of years left in your current mortgage
- Your plans for using the equity in your home
While refinancing your mortgage, it is important to determine if you will be saving more money than you would if you did not refinance your loan. This can be computed by doing a Break Even Analysis using the following formula:
Break even analysis= Closing costs/monthly savings
When it comes to your mortgage, it is important to be familiar with your own financial situation. This means knowing your credit rating, your debt-to-income ratio, and your total income and assets. Before you even think about refinancing your mortgage, you need to know the current state of your finances.
Refinancing Your Credit Card
In refinancing credit cards, the rule is generally to consolidate various higher-interest balances into one, easier-to-handle and less-costly package. Refinancing credit cards can also be an effective way to manage credit card debt.
A major appeal of consolidation loans is convenience.
Instead of paying 20 different creditors who are charging different rates at different times of the month, you take out one big loan and pay off all those creditors in one go. From then on, you make a single monthly payment on your new loan. Oftentimes you can refinance at a lower, fixed rate, meaning that you're saving money as well as hassle.
Before you sign on the dotted line, be sure that the costs of the new, bundled loan will truly be less than what you're already paying various creditors. Be wary of increased costs that will prevent you from saving money when you go to refinance.
Qualifying for a Refinance:
At this point you are probably wondering how to qualify for a refinance. Before you look further into refinancing, you should check to make your credit score is correct as a higher score may lead to higher interest rates and reduced savings. You can check your credit score for free online using the credit score tool SavvyMoney®. Before applying for a refinanced loan, you should make sure that your credit report is accurate. If you find something amiss on your credit report, you can dispute the recorded information with any of the credit bureaus.
To get a sense of your finances, you can gather recent tax returns and pay stubs. Additionally, you can request account statements from your nearest Credit Union branch. One more thing to remember: if possible, it is helpful to avoid making major financial purchases while refinancing as it may be harder to qualify for a loan under new terms. Making large purchases before refinancing can increase your debt-to-income ratio and harm your credit score, which can result in a higher interest rate when you refinance.