Loan refinancing refers to the process of obtaining a new loan to pay off one or more outstanding loans. Borrowers often refinance to receive lower interest rates or otherwise reduce the amount of their repayment. Refinancing your mortgage replaces your old mortgage with a new one, one with a different principal amount and interest rate. The lender cancels the old mortgage with the new one, and then there's only one mortgage left, usually one with more favorable terms (lower interest rate) than the old one.
Refinancing an auto loan involves obtaining a new loan to pay off and replace the current one. You start making payments on the new loan, which usually has a lower interest rate or a different repayment period. Completing an application for a car refinance usually takes less than an hour, and many lenders issue a loan decision right away. Refinancing will hurt your credit score, as a credit check is done when you refinance your mortgage; however, this is temporary and your score will be adjusted over time.
For homeowners, refinancing is a great way to lower the cost of their mortgages when interest rates fall, allowing them to get a lower interest rate than they currently have. It's a good idea to use a mortgage refinance calculator to calculate the break-even point after accounting for refinancing expenses. When you refinance your mortgage, your bank or lender amortizes your old mortgage with the new one, hence the term refinancing. Basically, this occurs when refinancing costs are “recovered” through the monthly mortgage payment.
lower. Maybe you originally took out an adjustable rate mortgage (ARM) to save on interest, but you'd like to refinance your ARM to convert it to a fixed-rate mortgage while rates are low. Consumer loans that are normally considered refinancing include mortgage loans, auto loans, and student loans. The truth about mortgages states that it's important to make sure you break even before deciding to refinance your current mortgage rate.
The main difference between a refinance and a loan modification is that refinancing gives you a new mortgage, while the modification changes your current conditions to add late payments to your balance to help you stay at home.