To help you understand more of why refinancing is important, here are some reasons why people refinance their loans.
1.To shorten the mortgage payment term some people want to shorten the existing mortgage payment term once they are able to. This is because usually, the longer the term, the bigger the interest rate that they have to pay. When you shorten your payment term, you might pay a fine to cut off the existing contract. However, in the long run, it will still be less than the interest you are paying on the old loan terms.
2.To take advantage of a lower interest financial institutions can offer a lowered interest rate if you open a new loan or refinance your existing loan with them. They do this to keep you as their client. You might need to pay a small fee to make this happen especially if your previous loan is still substantial.
3.To change the rate from fixed rate to adjustable rate You might want to take advantage of a different type of rate so you refinance your existing mortgage to change it. Fixed rate and adjustable rate both have its pros and cons. Its up to you to determine which type of rate you can handle.
4.To finance a huge purchase if you ever need to buy something thats expensive like a new boat or a new car refinancing, an existing loan can help make it happen. If you always pay your loans on time and have a good payment record, you could be lucky and get a bigger loan after you have refinanced your existing loan.
5.To consolidate debt If you have more than one loan opened with the same financial institution that has different payment terms, it might get confusing and hard to keep track. Some financial institutions would offer to consolidate all your loans in a single contract so you wont have a hard time keeping up with different payment terms and interests. This is more efficient as you wont have to worry about forgetting payments to all your other loans and incurring interest in the process. Consolidating debt simplifies your payment terms.
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