The repayment of large financial liabilities (eg mortgages) can take several, a dozen or even several dozen years. This means that once repurchased repayment terms can be significantly less attractive after a certain time than at the beginning. One solution to this situation is a refinanced loan.
The operating principle is very simple. We are talking about a loan used to repay a similar liability to another bank. Thanks to the “transfer” of the exposure to another institution, we can obtain significantly better credit terms – they can relate to the number of installments, their amount, the interest rate or, for example, the currency to be used.
Refinanced loans are therefore aimed at people who are dissatisfied with the terms to which they repay their exposure, so they want to benefit from a better deal.
When can we opt for refinancing?
This solution is often confused with a consolidation loan that works on a similar basis but may involve multiple loans for different purposes. A refinanced loan must be for the same thing.
Therefore, banks make a similar offer primarily to people who repay a mortgage or a car loan. It is unlikely that we will find similar solutions to the typical obligations of consumers.
What are the benefits of refinancing?
The obvious advantage of this solution is the ability to get much better repayment terms. In this way we reduce the installment, extend the duration of the money return or get a cheaper interest rate.
Many institutions that capitalize on the positive changes in the real estate market often choose to give up margins or other additional fees. All this reduces the amount we have to return to the bank. It should be remembered that even seemingly small changes can bring serious benefits. Lowering the interest rate by one percentage point actually reduces the rate by several hundred USD – all of which makes one think about such possibilities.
Refinanced loans are mainly recommended for persons who have made initial commitments in a high interest rate situation. In their case, the benefits can be really big. Of course, you should always remember to carefully consider the new bank’s offer and see if we can easily repay the entire liability in the existing institution. Some of them impose heavy “penalties” for early repayment.