What comes to your mind when you hear of loan refinancing? Well, it simply means taking a new loan to pay off another outstanding loan. Sometimes we find ourselves in difficult financial situations and unable to pay off loans. To avoid penalties and other consequences, getting another loan to settle it comes in handy. Mostly, borrowers go for loan refinancing to either reduce their loan repayment amount or lower the interest rates.
Similarly, debtors having trouble paying off loans can use loan refinancing to lower their monthly payments and extend the loan term. However, the total amount of money paid is higher in such situations because the interest for the extended period has to be paid. This article will discuss all you need to know about loan refinance; read on to find out!
What is Loan Refinancing?
By refinancing a loan, a borrower can replace their debt with another one that favors them. It is a process through which an individual takes a new loan to settle their existing loan. The terms of the new loan replace those of the old one. By doing so, borrowers can reduce the monthly loan repayment, extend the repayment duration, or get better repayment options. In the US, a good number of consumer lending institutions that offer direct loans also give loan refinancing options. It is important to note that there is a slightly higher interest rate on refinancing loans for products like car loans or mortgages than that on purchase loans.
Discussed below are some of the loans that can be refinanced.
Student Loans Refinancing
On most occasions, student loan refinancing is used to channel several loans into a single payment. For instance, a newly graduated individual might have a collective debt comprising unsubsidized federal loans, subsidized federal loans, and private loans. Each loan named has its interest rate, and there are high chances that two different institutions give federal and personal loans — this means that the individual has to make two separate payments monthly. Using a single lender and refinancing their loans, the individual can manage their loan debt through a single company, increasing the chances of reduced interest rates.
Credit Cards Loans Refinancing
One of the commonly used ways to refinance credit card loans is personal loans. With credit card loans, the interest increases rapidly, and it can be very challenging to manage a rising debt. Compared to personal loan rates, credit card interest rates are relatively higher. So, by settling the credit card debt with personal loans, you can easily get a manageable and more affordable loan repayment plan.
Mortgages Loans Refinancing
Homeowners refinance their mortgages for two main reasons: shorten their term length by half or reduce their monthly payment. For instance, if you financed a home purchase with an FHA mortgage (a product backed by the government that accepts reduced down payment), you will have to pay more a higher mortgage insurance than homeowners with traditional mortgages. Conventional mortgages only need insurance coverage until a 20% equity is reached. If you are an FHA borrower and have reached the 20% mark, you can opt for a mortgage loan refinancing to stop paying the insurance.
Borrowers opt for a 15-year mortgage repayment period to quickly pay down the loan. If you can make more significant monthly payments in a shorter time, you can save money on interest rates. For 15-year loans, the interest rate is far much lower than 30-year loans.
Auto Loans Refinancing
Perhaps, the main reason most car owners opt for auto loan refinancing is to reduce their monthly payments. When at risk of defaulting your debt, getting a restructured auto loan plan can help get your finances back in good shape. There are, however, specific eligibility requirements that banks have for auto loan refinancing. They include outstanding balance limits, mile caps, and the age of a vehicle’s restrictions. If you are in a difficult financial situation and need a loan restructuring, it is good to reach out to your loan lending institution and let them know your state of finances.
Small Business Loans Refinancing
Refinishing their business loans is a way small business owners improve their finances. SBA 504 loans ( meant for buying real estate property and equipment) can be used to refinancing real estate loans. Like mortgage refinances, opting for a different business loan can reduce the monthly payment and lower interest rates. Those overwhelmed with business loan repayment can use consolidation loans to restructure and work around the payment plan.
Advantages of Loan Refinancing
- Lowers your monthly payments: Loan refinancing reduces the interest rate, especially if you get a new loan with a lower interest rate than the existing one. You are eligible for a lower rate based on improved credit score, market conditions, or emerging new factors that didn’t exist before. By paying lower interest rates, you save a lot of money over the life of your loan. This is higher for long-term or large loans.
- It allows you to extend the repayment period: You can do so by increasing the loan term. This option, however, will potentially increase the interest costs. You also have the option to refinance your loan into a short-term to settle it quickly. For example, a homeowner might want to restructure their 30-year mortgage loan into a 15-year mortgage loan with a lower interest rate and higher monthly payments. So instead of 30 years, you will have the loan settled in 15 years.
- Consolidates other loans into a single loan: Loan refinancing allows consolidation of several loans into one, increasing chances of a lower interest rate. Similarly, having many loans consolidated into one makes it easy for you to keep track of monthly payments. This is more useful for people with a variable-rate loan that fluctuates their monthly payments with interest rates continually changing. Switching to loan refinancing helps fix the problem by maintaining a fixed rate. Fixed loan rates offer protection in situations where rates are expected to rise. It also makes it possible to predict monthly loan payments.
Financial Institutions Offering Loan Refinancing
Discussed below are financial institutions that offer loan refinancing.
This is an online loan service provider meant for borrowers looking to refinance their mortgages with established lending institutions. With LowerMyBills, it doesn’t matter the type of loan you need or your credit score. It does an excellent job finding a lending company that will work on your loan request. LowerMyBills offers free online services and has a fast application process. With them, you can be sure of several loan refinancing services.
2. Quicken Loans
In most cases, loans provide a non-bank selection of adjustable and fixed-rate mortgage refinancing and home loans for slightly expensive homes. Quicken Loans is by far the largest lender in the US for mortgage loans backed by the FHA. The company also offers VA loans backed by the Veteran Affairs Department and USDA loans guaranteed by the Department of Agriculture. It provides affordable mortgage loan refinancing rates for homeowners.
This is a negotiation tool that helps reduce your bills. Given that most of us aren’t keen on monthly subscriptions, using Billshark services can be advantageous. The company charges a fee to negotiate savings on your bills. The fee is only paid if they negotiate savings; if they don’t, you won’t have to pay. Billshark charges up to 40% of the saved amount. For instance, if they save you $1000, you will pay them $400. The fee is based strictly on savings; you won’t be continually charged for savings over the contract lifetime. Billshark services are more beneficial if you are a busy person and don’t have time to keep an eye on your monthly bills.
This is a platform that suits those who appreciate fast application process and online convenience. It also doesn’t charge origination fees. Better.com is an American based digital mortgage lender — doesn’t have physical offices, entirely online-based. It mostly deals with refinancing loans and other purchases. Better.com also handles conventional loans with a 3% down payment, jumbo loans with no mortgages, and insurance coverage. It is important to note that the company does not offer lines of credit and equity loans, home improvement loans, or VA loans.
This lending company offers to refinance loans and mortgage-backed by the FHA and Department of Agriculture. Just like Better.com, AmeriSave doesn’t provide second mortgage products like lines of credit or home equity loans. The company, however, offers cash-out refi. It does not provide mortgages for structured or manufactured housing. On average, AmeriSave mortgage totals to around $242,000. Those looking for mortgage refinancing will find AmeriSave very beneficial.
Being a top refinance loan lender, LoanDepot offers a wide range of purchase home loans. It has several mortgage products: adjustable and fixed-rate mortgage loans for refinances and purchases, loans backed by the FHA, and jumbo loans. LoanDepot does a lot of refinancing. According to the Home Mortgage Disclosure Act, cash-out and standard refinance accounted for over 65% of LoanDepot’s loan volume in 2019. The company has a “lifetime guarantee” on subsequent refinances. It has lucrative interest rates on the many loan refinancing options they offer.
The company offers residential sale-leaseback services in the US, making it possible for homeowners to sell their houses without relocating. EasyKnock is very different from home equity lines of credit and reverses mortgages. The company buys the property from a homeowner and then rents it back to them. They have the option to move at any time or buy back the property. Through its Sell and Stay Program, EasyKnock gives an alternative to individuals with bad credit or complicated finances. Doing so allows homeowners to continue staying in their current home while looking for other options elsewhere. They also have access to the money.
This is an established online lender that gives student loan refinances. Sofi also offers private student loans for college students. If you want to enjoy many benefits with your refinanced student loan, go for Sofi’s refinancing loan. It provides a private loan that has flexible repayment options and contains no charges. The average income of those whose loans have been approved by Sofi is over $100,000. This doesn’t mean that those with modest gains won’t benefit from Sofi — it has no specific income requirements and accepts all borrowers that have an associate degree.
9. Laurel Road
It offers loan refinances to both graduates and undergraduates. You can refinance with Laurel Road as long as you are an eligible borrower. This is one of the few lending companies that allows dentists and doctors to refinance as soon as they are assigned a fellowship or residency. The borrowers are, however, not eligible for a Health Professional discount. With Laurel Road, the loan terms range from 5, 7, 10, 15, or 20 years. You can get a loan of up to $5,000, depending on your outstanding loan balance. In case you refinance more than $300,000, it will be broken into two loans.
10. Splash Financial
Founded in 2013, Splash Financial is a digital marketplace that offers student loan refinances. If you want quotes from more than one lender, this is the best platform for you. It has loan terms ranging from 5, 7, 10, or 15 years. You can apply for a loan from $25,000 to $500,000. With Splash Financial, you can transfer a parent loan to a child. It is also important to note that there is a late payment penalty. A fee equal to around 20% of the interest option is applicable after payment is delayed by five days. They charge a minimum late fee of $5 and a maximum of $25.
his is an online lending company that offers both private student loans and student loan refinancing. If you have a bachelor’s degree and prefer repayment flexibility, go for CommonBond’s refinancing loans. They offer private student loans that are ideal for those who are planning to use value customer support. If you want more from a lending company than just a loan, CommonBond is the best option for you. Its loan term ranges from 5, 7, 10, 15, or 20 years for standard rate loans and ten years for hybrid-rate loans. You can apply for a loan starting from $5,000 to $500,000.