The Pros and Cons of Refinancing
To refinance or not to refinance -- that is the question.
The answer is not in your psyche -- the answer is in good analysis of your particular situation.
First you must list responses to the following before making any decision: 1.
My total monies owed is $______________(i.
e.
car payments, visa payments, mortgage payments, telephone payments, loan payments, etc.
) and what I pay on them monthly 2.
Other monthly charges (i.
e.
hydro, power, food, clothing, babysitting, etc.
) 3.
My total income is: $__________________ 4.
How much do I have left over $______________ This becomes the foundation for your decision.
Next you must calculate all the interest rates you are currently paying and how much those interest rates add up to.
Once you know the interest rates you are paying you have a value that you can take to the bank.
Definitely refinance if: 1.
You are paying interests rates that are at least 2 percent higher than currently offered 2.
Consolidating your loans and outstanding credit will give you a lesser monthly payment; but will increase the principle you pay off each month 3.
You have researched the company or bank you are dealing with and find that they are reputable- ensure your research is sound.
4.
Refinancing will allow you to DECREASE not INCREASE the term of your debt load 5.
You have checked the consequences of missing a payment and it is a consequence you can live with.
6.
You have an excellent credit rating and have never missed any payments 7.
Your overall stress level will be reduced NOT INCREASED! You are not in a position to refinance if: 1.
Your current mortgage or loan is one that you have had for a number of years and you are currently paying mostly principle and much less interest (the older the loan/mortgage the greater you pay on principle because as the loan diminishes the interest calculated is on a lesser amount) 2.
You want to refinance so you can have extra cash to spend on something else.
This is never a good reason to refinance.
It will simply put you in greater debt.
3.
If your credit rating is poor due to missed payments -- STOP don't do it! You will be paying a higher interest rate than necessary and quite possibly will be deemed an unacceptable credit risk! 4.
The cost of refinancing is going to substantially add to your debt load -- you have to consider how much it is going to cost you to get out of your current arrangements 5.
Look at your stress level again -- are you increasing it? There are without doubt many reasons to refinance and each situation, each person, will need to do their own analysis.
What you need to consider first and foremost is what kind of money manager are you? Are you doing this to free up some cash to spend elsewhere or do you feel by refinancing you will be gaining on your debt? Countries these days run on deficit financing -- private citizens cannot afford to do so because if you do who will pay for the countries spending habits?
The answer is not in your psyche -- the answer is in good analysis of your particular situation.
First you must list responses to the following before making any decision: 1.
My total monies owed is $______________(i.
e.
car payments, visa payments, mortgage payments, telephone payments, loan payments, etc.
) and what I pay on them monthly 2.
Other monthly charges (i.
e.
hydro, power, food, clothing, babysitting, etc.
) 3.
My total income is: $__________________ 4.
How much do I have left over $______________ This becomes the foundation for your decision.
Next you must calculate all the interest rates you are currently paying and how much those interest rates add up to.
Once you know the interest rates you are paying you have a value that you can take to the bank.
Definitely refinance if: 1.
You are paying interests rates that are at least 2 percent higher than currently offered 2.
Consolidating your loans and outstanding credit will give you a lesser monthly payment; but will increase the principle you pay off each month 3.
You have researched the company or bank you are dealing with and find that they are reputable- ensure your research is sound.
4.
Refinancing will allow you to DECREASE not INCREASE the term of your debt load 5.
You have checked the consequences of missing a payment and it is a consequence you can live with.
6.
You have an excellent credit rating and have never missed any payments 7.
Your overall stress level will be reduced NOT INCREASED! You are not in a position to refinance if: 1.
Your current mortgage or loan is one that you have had for a number of years and you are currently paying mostly principle and much less interest (the older the loan/mortgage the greater you pay on principle because as the loan diminishes the interest calculated is on a lesser amount) 2.
You want to refinance so you can have extra cash to spend on something else.
This is never a good reason to refinance.
It will simply put you in greater debt.
3.
If your credit rating is poor due to missed payments -- STOP don't do it! You will be paying a higher interest rate than necessary and quite possibly will be deemed an unacceptable credit risk! 4.
The cost of refinancing is going to substantially add to your debt load -- you have to consider how much it is going to cost you to get out of your current arrangements 5.
Look at your stress level again -- are you increasing it? There are without doubt many reasons to refinance and each situation, each person, will need to do their own analysis.
What you need to consider first and foremost is what kind of money manager are you? Are you doing this to free up some cash to spend elsewhere or do you feel by refinancing you will be gaining on your debt? Countries these days run on deficit financing -- private citizens cannot afford to do so because if you do who will pay for the countries spending habits?
