Refinancing Loan/Refinance Loan

Refinancing Loans are now a days becoming more and more popular because of the bad credit history of people. People take loans without thinking much about it but after that one day in the morning when they wake up, they find themselves in a deep debt, up to their eye balls.

Definition: Refinancing Loan / Refinancing -

- Wikipedia: Refinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms. The most common consumer refinancing is for a home mortgage.

- Investopedia: Refinancing a mortgage means paying off an existing loan and replacing it with a new one. There are many common reasons why homeowners refinance: the opportunity to obtain a lower interest rate; the chance to shorten the term of their mortgage; the desire to convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa; the opportunity to tap a home's equity in order to finance a large purchase; and the desire to consolidate debt. Some of these motivations have both benefits and pitfalls. And because refinancing can cost between 3% and 6% of the loan's principal and - like taking out the original mortgage - requires appraisal, title search and application fees, it's important for a homeowner to determine whether his or her reason for refinancing offers true benefit.

Explanation: -

There are so many reasons for refinancing the loan. There are some advantages and disadvantages of Refinancing.

- Shortening the Loan’s Term

- Converting between Adjustable & Fixed rate Mortgages

- Tapping Equity & Consolidating Debt

Advantages of Refinancing Loan -

Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting your debt under control.

Disadvantages of Refinancing Loan -

According to the Finance Gurus, Refinancing won’t work for People even though the Maths & Logic behind it works….. Because the people have not changed their Bad Financial Behaviour & Habits.

What Most of the people do is, they take the Refinance Loan to convert their high interest credit card & personal loans into low interest loans and to free the Credit Limit of their Credit cards. But they don’t change their behaviour and Money Habits so after taking a Refinancing Loan, they again start scratching their Credit Cards & start taking more Personal Loans. So the next time situation becomes more worst.

Because Now they are in 2 debts. One is Refinancing Debt & other is their Credit Cards Debt. So the situation worsens more……!!!!!! And that’s why Finance Gurus advise to change your Spending behaviour before taking Refinance Loans.