When you’re looking at lowering your cost on a house or car, you’re bound to wonder about the pros and cons of refinancing.
Refinancing allows you to finance your purchase again while usually securing a lower interest rate. But refinancing can be challenging, so you’ll want to make sure you research thoroughly before you sign for a new loan.
In this post, you’ll learn about refinancing so you can make the right decision for you.
Pros of Refinancing
Check out these pros of refinancing your home or car:
- Saving money. Taking out a new loan will help you save money if your interest rate goes down. When you have a lower interest rate, you’ll save on monthly payments over the life of the loan.
- Improving cashflow. If you lower your monthly payments, you’ll be able to fit more things into your budget. If money’s tight, refinancing your home or car might allow you to afford a more comfortable life.
- Consolidating debt. Some borrowers choose to cash out the equity from their property and pay off higher interest rates with their refinance loans. This method will allow you to make a single payment to your mortgage lender.
- Pulling cash out for investing. Refinancing could allow you to cash out your equity and use it for investing at a higher return than the cost of the loan.
Refinancing has its benefits, but make sure you see the “Cons” section below to see the risks and challenges you may face.
Cons of Refinancing
- Gaining only minimal savings. Before you sign on the dotted line, make sure you calculate and compare the actual numbers. Refinancing usually comes with costs and fees attached, so you need to look at the overall cost of the loan and not just the interest rates.
- Spending a lot of time and energy. Refinancing can take up to 45 days and a lot of paperwork. Run some numbers on how much you’ll actually save by refinancing, and then consider if the labor involved makes sense.
- Putting a home at risk to pay other debt. If you’re wanting to refinance so you can cash out equity and get a lower interest rate on your debt, just know you’re taking a big risk. If you can’t make the payments after putting your other debt under the house note, you could lose the home or car.
- Putting a home at risk to invest. Investments almost always carry risk and returns can be unpredictable. If you’re refinancing and borrowing against the equity in your house, you might be taking a lot of risk because you could lose the home or car if you can’t make payments.
Before you jump into refinancing your car or house, make sure you check out the pros and cons. Pros include saving money, improving cash flow and consolidating debt. Cons include gaining only a minimal amount of savings, spending time and energy on refinancing and putting your home or car at risk to pay debt or invest. For more rock-solid advice on loans and personal finance, go here and become a Flyy Credit University Member.