Refinancing your loan amidst the pandemic


Not many people are aware of refinancing. Maybe because a lot of lenders are not explaining its benefit to the borrowers because it means lower payments, lower interest and less collection on their part. Only a few lenders are truly concern of the welfare of the borrowers, which is why refinancing is oftentimes not being discussed before or during the contract signing of a loan. This pandemic has caused the interest rates to fall, as low as 2.5%. As mortgage rates continues to fall, a 105% surge in the refinance demand was recorded in 2020. That data alone shows that this may be the perfect timing to refinance your loan. 

What is Refinance? 

A refinance, refinancing or simply "refi" means the replacement of an existing debt obligation with another but under different terms. Usually, it is a loan or mortgage where the terms of an existing credit agreement is revised and replaced. The changes in the terms are always favorable to a borrower’s interest rate, payment schedule, and/or other terms outlined in their contract. 

Refinance is in demand when there is a substantial change in the interest-rate giving the borrower a potential savings on debt payments from a new agreement. 

The current pandemic and global downturn caused the interest rates to fall at an all-time low which means now is the best time to refinance mortgage loans, car loans, student loans, and the likes. If you are not that familiar about refinancing, you may use this online free refinance calculator to see how much you will actually save. 

The calculator has three parts that you need to fill up. First is Your Old Mortgage information such as : 

Home price – the actual or contract price of the property 
Down payment – recommended is at least 20% of the home price 
Original loan amount – automatically calculated, no need to fill in 
Original APR – the interest rate applied to the loan 
Original loan term – length of loan in years 
Time left on original – time left to pay the loan in months 

Second part is the Mortgage Refinance Terms consists of : 

New loan amount 
New loan term in years 
New interest rate (APR %) 

Lastly is the Refinancing Closing Costs which are the ff: 

Discount Points 
Origination Points 
Other Closing Costs 

If your home price is $200,000 and you pay 20% down payment which is $40,000, your original loan amount is $160,000. Say, your APR is at 6% for a 30-year term and you still have 20 years or 240 months left to pay off your mortgage. Suddenly, interest rates fall to 3% because of the pandemic. When you refinance your mortgage during this period, your monthly payment will be reduced from $959 to $887 which means you will save $72 monthly for the remaining 20 years of your loan term. 

The calculator will show results comparing your old loan with your new loan where it shows that your monthly payments had decreased significantly. It will also show much would be your total savings from refinancing. The closing cost is also shown in the result, so you can prepare or start saving for it before you apply for refinancing. 

The shifting economic conditions push more people to refinance to lower the fixed interest rate to reduce payments over the life of the loan, to change the duration of the loan, or to switch from a fixed-rate mortgage to an adjustable-rate mortgage or vice versa. 

The big savings shown in the example above clearly proves that this is the time to consider refinancing. Apart from lower interest rates and lower monthly payments that you can enjoy by refinancing, you can also acquire an influx of cash for a pressing financial need.