What is Refinance?

Refinancing is the process of contracting a new loan with a view to repay an existing loan. Refinancing a loan requires full repayment of a loan for which purpose is the same purpose as the refinance loan, according with the laws in force.Criteria and procedures for the refinance loan are similar to those of a new loan contract on the basis of the product chosen and selected credit institution.

Benefits of refinance and knowing what to expect.


1. Lower interestMost believe that refinancing is the main advantage of a lower interest rate. For this to be really an advantage, you should analyze in detail the refinancing offer to look over the new real interest rate loan. In addition, do not forget that refinancing involves fixed costs and some, such as those related to extinguish the initial loan, the granting of new credit to which all adds to the cost of new credit, so the decision to refinance a loan must carefully analyzed.

2. Greater amountAnother advantage, which may be decisive in our opinion, is the possibility of additional loan amount. Contracting a new more favorable credit conditions mean a reduction in household indebtedness (a better reliability) and automatically access additional sums.

3. Longer termAnother condition that comes to help supplement the new loan amount is the possibility of extending it up to maximum period of credit granted by that institution. Thus, a longer period leads to a greater amount of the loan and / or lower monthly rates.

Now the conclusion and the downside.

If you ask me, refinancing is like trading a cow that doesn't give you milk for one that gives you bitter milk.

Just think about it, lower monthly rates sounds good, but what about a greater amount of money borrowed, and a longer term to pay back the loan, are you sure these are good news too?

Let's analyze them for a second.

1. Paying for a loan with a bigger loan is not bussiness to me. Is like making a bigger debt which you don't need. In some cases refinancing it's delaying the inevitable. Just imagine you could convince someone to change houses with you - his bigger house with your small one, and then what, bigger light bills, bigger maintenance and gas bills and so on. Can you handle it?

2. Lower monthly rates is the basic line here, that line is used to attract you to it. If they could have gave you lower rates why didn't they do it the first time. Because they would admit that hey took advantage of you when you made the first loan and they would give you a  "because of the market" reason. So wait a moment, they are still taking advantage of you.

3. Longer term doesn't seem to good at all - that means you will be stuck 20 or 30 years with a loan, that is if you live 20 - 30 years. If not, the debts go to your family or backers. Just think about it, a house or a car is not everything in life. A car may break down and is constantly consuming money. The house could be taken away by the hurricane, or earthquake. And you invest continuosly in your home confort. And what do you do when you ran out of money? You refinance. That is not a way to live - from borrowed money.

4. A larger amount. Just to pay out the old loan and to have some extra money? What about the fees for paying earlier the older loan, the bank administrative fees. With what extra money do you remain? Exactly. A large amount only on papers, but not in the pockets.

In conclusion, in my opinion, refinancing is just buying you some time to find a solution. Be carefull when you look over the offers of refinancing. It is said that the banks always has the edge. Do not sign anything if you don't agree with the bank fees, or with the agreements. I hope someday there will be a fair trade between bank and customer.