Various Refinance Loan Options
Refinance loan is a loan taken to clear out an old loan which may work out to be more favorable
. The new loan is used to pay off the older one and the borrower makes payments towards the new loan which presumably was availed at a lower rate of interest or better terms. While availing a refinance loan, a borrower may borrow a little more than the remaining amount of the old loan to take some equity out of the home which is an asset. Usually refinance loans are taken to refinance a mortgage of a house. There are some companies that give auto refinance loans, bad credit refinance loans and debt consolidation refinance loans. A refinance loan would be typically sought if the loan interest rate has fallen to a level less than when the first loan was availed. For instance, if a borrower borrowed a sum of $200,000 for 30 years at 8% rate of interest fixed and after a few years, the rate of interest for the loans in the market fell to 6%, then the borrower may want to reduce the amount of interest paid to the creditor. If the borrower refinanced this loan at 6% rate of interest, then the savings would be $268.00 per month. In fact it translates into savings of nearly $100,000 over the term of the loan.
It would be prudent on the part of the borrower to weigh the pros and cons of refinancing when considering a
Refinance loan.. The borrower may take into account the costs involved in refinancing against long term savings, if any, before availing one. There are many financial institutions which may offer loans at a lower rate of interest for the same term as the original loan. It is therefore advisable to shop around to find out about the nature of the refinances offered. It is also advisable to check the background details of the companies offering refinance loans.
Consolidation loans on other hand can be sought when more than one loan needs to be paid off. The idea is to make one single payment towards all the loans that are outstanding and preferably at a lower interest rate. Depending upon the credit rating of the borrower, the debt consolidators offer different rates of interest for their debt consolidation services. The other two major factors that are taken into consideration for an approval of a loan are debt-to-income ratio and loan-to-value. These two also the affect the rate at which a loan is offered. If the borrower has good credit rating, the debt-to-income ratio is low and the loan-to-value is also low, then the rate at which the loan is offered is often low. But if one has bad credit or the debt-to-income or the loan-to-value sought is high, then the rate of interest would be higher. It would therefore be required for the borrower to improve upon the credit rating and may be also reduce the amount of loan sought to the actual value of the house and at the same time pay off some of the previous debts to get a better bargain.
Personal loans are loans that are availed for purposes other than for purchase of real estate. These loans may be availed for various purposes such as college fees, making car repairs, paying tax bills. This type of loan can be useful in consolidating debt for people who find it difficult to manage many outstanding accounts. This may also help the borrower to reduce the rate of interest at which the many different debt accounts are paid off. Consolidating may also be helpful in increasing the credit rating of the borrower. There are two types of personal loans- closed-end loan and line of credit. A closed-end loan is a one-time loan amount with fixed interest rate and a very short term whereas, a line of credit is similar to a credit card with revolving balance and set limit. Usually personal loans are appealing as they are usually unsecured. This means that no collateral is required to obtain such loans. As with all loans though, it would be advisable to shop around and find the best fit.
by: Ask Bill
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