If you have ever heard of refinancing, there is a pretty high chance that you have heard about how it works with mortgages. Did you know, though, that you can do it with pretty much any type of loan? From auto to personal to business, almost anything can be refinanced.
There is just one cost to it, as you can probably imagine. That is the case for most credit agreements. Thankfully, there are ways that we can ensure that a refinancing loan will be in our favor over time.
Of course, if you are not sure what they are, you may still be a little lost. That is understandable. Essentially, refinancing is the process of taking a current debt and transferring that balance into a different loan that has better terms for you as the borrower.
It is pretty simple, really, so it is not something that you need to be intimidated by. When you have found a lender that seems to suit your needs, you can start by preparing an application. That said, though, why would you want to refinance in the first place?
Today, we will be going over seven reasons why you may want to. There’s some additional information on the process on this page if you’d like that context before we continue. With that said, let us dive into the top seven reasons to refinance your debt!
Table of Contents
One: To Lower Your Interest Rate
We will start strong with perhaps the most evident reason to try to refinance your loans. We have all seen how insane inflation has gotten over the past few years. Unfortunately, there has been a similar effect on interest rates.
If you have borrowed money since 2020, you probably noticed how high you have been charged as far as your interest rate. Because interest is basically the fee that we are charged to allow us to borrow the money in the first place, it is not something that we can entirely escape. However, there were a few years there when the rates were just sky-high.
Since then, it has cooled off quite a lot. That is part of why it is such a good time to consider refinancing. There is really no telling when the rates will rise again, so it is best to take advantage of them while they are low!
Just remember that this will not automatically happen because you decide to refinance. You will have to make it clear that this is your goal to your lender. When a contract is drafted, double-check that the new deal will be beneficial to you. If it is not, you may want to keep looking.
Two: To Consolidate Other Debts
A lot of people tend to separate refinancing and consolidating in their minds. However, consolidation is a type of refinancing, so they are linked quite soundly! Consolidation is when you take several outstanding debts and take out one loan to buy out all of them.
So – you can see how it fits under this umbrella. There are a few purposes behind consolidation, too. For one thing, it is quite convenient for the borrower. After all, since you are able to combine all of them and only need to keep track of one loan, it can bring some peace of mind.
Additionally, it can help you to score a lower interest rate on all of those loans in one fell swoop. It is certainly easier than trying to individually refinance each of them. If this is a situation that you have found yourself in, then consider consolidating. It could really end up helping out.
Three: With Mortgages, you can Tap into Your Home Equity
Although we are not focusing primarily on mortgages, what would an article about refinancing be without mentioning them? This style of credit agreement can be used to borrow money against your home equity, which is what we mean by “tap into” it.
The process can be a bit more complicated than some of the other things that we have mentioned thus far. As such, there are resources like this one, refinansiere.net – refinansieringslån, which can help to guide you through it (amongst other things, of course). The idea is that you can stay relatively financially stable and still get the benefits of refinancing (i.e., the lower interest rates).
Four: Adjust Mortgage Insurance
As a final note on the mortgage subject, there is one more reason you may want to refinance it. Namely, that is if you want to change or entirely eliminate your current insurance for your mortgage. This works a bit differently depending on where you live, as many countries have alternate methods of “policing” how insurance operates.
So, if this does not seem applicable to you, feel free to skip to the next section. However, if you have noticed that you are paying a lot for the insurance, but it is not particularly useful for you, a refinancing loan can help you to get rid of those costs altogether. Inquire with your lender if you are uncertain!
Five: Boost Your Savings
At first glance, this point may seem rather counterintuitive. How are we meant to increase our savings if we are still taking out another loan? The key is all in the interest rates being lowered. This will save you some cash each month and will allow you to set more aside for your savings accounts.
If you didn’t know, it can be quite expensive to retire – even when our country has social programs in place to assist retirees maintain their standard of living. So, having some extra money set aside can truly be invaluable.
Six: Paying off Credit Card Debt
Credit cards are one of the leading factors behind debt here in Norway and in many countries across the world. It is a problem that resonates with a lot of us out there. Refinancing that debt to ensure the balance is not on the card anymore is one way to subvert the problem.
Most personal loans simply have much lower fees and interest rates than credit cards do. So, in that sense, there is not much of a downside to doing this. With that said, make sure that you are not paying off the credit card just to max it out again. Only refinance it if you are certain that you can manage it more responsibly this time.
Seven: To Enjoy the Perks of Having Better Credit
For our final reason today, it could be misconstrued at first for being something to “enjoy” in the traditional sense of the word. However, for the most part, which is not the intention here. Rather, we are saying that if you are not necessarily happy with how your current credit agreement is and you have a better score now than you did when you first applied, you can potentially change that quite significantly.
Seeing as credit scores are the key to financial success in a lot of ways, it should likely come as no surprise that you get certain perks the better your score is. One of them is, of course, lower interest rates and even monthly payments. This is because you have demonstrated over time that you are a trustworthy borrower and do not miss payments.
Now, this is just something to consider if you have not revisited old credit agreements in a while. You may just find that you are able to get a much better deal now than you did when you first opened the account. There is a chance that the overall length of the loan might end up being longer if you do this, though, so bear that in mind.
This list is far from exhaustive on this topic. Feel free to check out the resources we have provided if you would like a more in-depth look at how refinancing operates in all sorts of settings. If any of these reasons resonated with you today, then best of luck with your applications! Make sure you have all of your financial documentation and personal identification that is necessary before you dive right in.
