Refinancing refers to applying for a
secured loan intended to replace an existing loan secured by the
Refinancing may be undertaken to reduce
interest costs (by refinancing at a lower rate), to pay off
other debts, to reduce one's periodic payment obligations
(sometimes by taking a longer-term loan), to reduce risk (such
as by refinancing from a variable-rate to a fixed-rate loan),
and/or to liquidate some or all of the equity that has
accumulated in real property during the tenure of ownership.
It is advisable to speak with a financial
professional, familiar with your existing loan(s), before
deciding to refinance. Certain types of loans contain penalty
clauses that are triggered by an early payment of the loan,
either in its entirety or a specified portion. Also, some
refinanced loans, while having lower initial payments, may
result in larger total interest costs over the life of the loan,
or expose the borrower to greater risks than the existing loan.
Calculating the up-front, ongoing, and potentially variable
costs of refinancing is an important part of the decision on
whether or not to refinance.
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