Sometimes circumstances evolve in such a way that the borrower cannot fully make payments on loan commitments. Refinancing a loan can be a salvation in this difficult situation. It is worth noting that such a banking service is not available to everyone. It can only be used by trusted customers, that is, an impeccable credit history. To do this, you shouldn’t have any delays in monthly payments. In addition, the bank’s employees will closely monitor income levels. The financial situation of the customer is sufficient, who is able to cover the expenses immediately under two credit programs. It is necessary to say a few words about what credit refinancing is.
The essence of this banking service is as follows: The financial institution gives the customer new borrowed funds with a smaller monthly payment but for a longer period. After he has received the required amount, he repays the loan previously taken. It is noteworthy that it is possible to use the refinancing service for any type of lending, be it consumer credit, car credit or mortgage.
Often, borrowers tend to refinance, previously there was a mortgage loan, and that’s logical because such a banking product is spent for a longer period of time, in which interest rates can change in a smaller direction. Before making such a decision, be aware that this procedure can result in the following costs:
- Commission to the bank for early repayment of the loan (up to 5%)
- commission for opening and maintaining an account, signing a contract and others
- property valuation
- Payment for notary services for the execution of the contract
- and other.
Usually the process of refinancing a mortgage loan is somewhat complicated. Banks most often refuse to provide such a program for this type of lending. This trend is easy to explain because, in this case, financial institutions lose the ability to control collateral for a period of time, which means that the risk of real estate re-registration is not a banking institution.
What is refinancing?
So, refinancing a loan in the above example relates to one of the most complicated procedures and accordingly the requirements for borrowers are tightened. For this reason, only large banks offer their customers the refinancing of loans.
Some borrowers find themselves in a less profitable position to take out a new loan. This is because consumers often only evaluate the benefits of a particular bank product based on the interest rate. This is wrong because various “pitfalls” can be hidden for a temptingly low rate. Credit experts point out that refinancing can only be profitable if the interest rate on the proposed product is at least 2% lower.