Refinancing respectively. loan refinancing is the repayment of the current loan by another loan. This means transferring the loan to another bank that provides the loan on more favorable terms.
What is credit?
A loan is the economic relationship between a creditor and a debtor under contract. We know short-term, medium-term and long-term loans according to the duration of the loan. Long-term loans include a mortgage that is provided for the purchase, construction or change of real estate. This form of loan arises by entering into a pledge agreement and entering the deposit of the pledge in the Land Register.
Why refinance the loan
Loan refinancing is most commonly used for mortgage loans, but can also be used to pay off other debts, such as credit cards, overdraft and leasing. When refinancing a loan, you can get more favorable terms. Refinancing the loan is most appropriate at the time of the end of the fixation period of the original loan, since then refinancing can be carried out without sanctions.
There are several reasons to refinance the loan. The most common cause of refinancing is trying to get a lower interest rate, thanks to which you can save a certain amount of funds. Another reason is to reduce the loan repayment period. Banks usually provide mortgage loans with a maturity of up to 30 years, but in some selected banks the maturity is longer than 30 years and the age limits for granting loans are different. If you are in an unfavorable financial situation and are unable to make high monthly payments, you can reduce those payments when refinancing the loan.
Recently, most banks have modified the refinancing conditions where the client can transfer his loan to another bank free of charge and under simplified administrative conditions.
What to look out for when refinancing the loan
There are a number of risks to be taken into account when refinancing a loan.
The first task in refinancing a loan is to count all the expenses associated with the loan transfer, to add the amount of reimbursement at the new bank and to compare the result with the amount you would have paid if you continued to repay the loan at the original bank.
The lower interest rate is tempting, but it may not be enough to cover the costs of carrying the loan. However, if you do not capture the bank’s marketing action, you must pay the new lender a lending fee, which may be up to 0.7% of the total amount of the loan, which is not a small amount.
Another task is the correct timing of mortgage loan refinancing. If you start negotiating with your bank about the terms and conditions of the loan for the next period just before the end of the fixation period, it may not suit you. Then you don’t have enough time to negotiate a new loan to refinance the original loan.
The optimal time to transfer a mortgage loan to another bank is five to six weeks before the end of the fixation, because then you have enough time to look at the offers of other banks and negotiate good terms with a potential bank.
Recommended for refinancing
If you do not know the conditions on the financial market, we recommend that you use an independent online loan and loan comparator. You can get an overview of your loans in a short time, and you can not only filter out the best loan or loan, but even apply for it online. The second option is to find an experienced financial advisor or mortgage broker.
A good financial advisor knows the offer of all banks and can advise you on where to get more favorable refinancing conditions. The financial advisor will analyze your situation in detail and suggest the best solution.