You've received numerous emails and letters from the bank, encouraging you to refinance your loan. While part of you is enticed by the idea of having a lower interest rate, or getting to renegotiate the terms of said loan, you're also wondering: what's in it for them? After all, reduced interest means less money for the bank, right? It's a good question to ask, so let's talk about it.
Yes, refinancing a loan allows you to score a lower interest rate or change the loan period, which can help you save money and better manage your monthly budget.
There's a catch, though.
Consider the costs
While a lower interest rate allows you to save money, refinancing a loan also requires you to pay fees, such as an application fee, so that institutions can make an additional profit. If you're refinancing a mortgage, you'll also have to repay your closing costs.
This doesn't mean, however, that refinancing isn't a good idea. It can actually be a win-win experience, depending on your situation.
Consider the time
To determine whether refinancing makes financial sense for you, consider how long you'll be living in your home and whether the savings you'll receive from a lower interest rate will eventually make up for the costs you'll pay up front.
Your financial institution wants to keep you happy
Another reason lenders might encourage you to refinance is to prevent you from seeking out a lower rate elsewhere. By offering the best rates, banks are able to keep their account holders' business, and ensure a positive experience to promote future business.
If your credit union or bank is giving you the opportunity to refinance, weigh the options, crunch some numbers, and see whether or not it's worth your while.
Blog Courtesy of Kasasa