Refinance
Refinance occurs where you take out another loan in order to repay an existing loan. This generally refers to mortgage refinance as this is usually where refinancing will be most effective for a borrower. You may refinance your mortgage by switching to a different lender in order to take advantage of a lower interest rate, therefore reducing your mortgage repayments and saving on interest over the life of the loan.
There are a number of other reasons why you might refinance your existing loan. These include borrowing extra funds from the equity you have built up in your property in order to use for other purposes such as landscaping, redecorating, buying a new car or going on a holiday. You may also refinance in order to consolidate all your debts into your lower interest rate mortgage (see consolidation).
Before refinancing your home loan, you will need to consider many issues before deciding whether it will be worthwhile for your situation.
Will you be able to afford any increase in loan repayments?
Will you have to pay any fees or charges for early repayment of your existing loan?
How much equity do you currently have and how much do you owe on the current loan?
What will happen if the property market falls and you lose some of the equity in your home?
Refinancing can be beneficial but it is not without its risks. It may help to seek professional advice before making any decisions on refinancing.