subject: Great conditions for refinancing, for some - the last chance [print this page] Great conditions for refinancing, for some - the last chance
The idea of refinancing is the same whether it's a car loan or a mortgage and there are two possible reasons you may want to refinance. The first one is the need to reduce monthly payments by extending the overall repayment period, this way the true cost of loan rises but lowers the strain on your monthly budget. In the second scenario the basic assumption is that the circumstances surrounding loan application when it was first made have changed for better - this may be either your credit history which has improved since, now giving you access to better deals, or the market has undergone serious changes like reduction of interest rate.
Coincidentally the latter is exactly what happened in the middle of credit crunch when Bank of England decided to lower interest rates creating massive savings for consumers. The rumor has it however, that in this period of slow economical growth interest rates may rise again. It's estimated that in late 2011 rates of the Bank of England may rise by 0.25%.
Even though this may not tell you much straight of the bat, listen to this: Jonathan Davis, a renown economist and wealth manager is claiming that property prices will inevitably fall during the next two to four years by as much as 30%.
Coming back to refinancing, it seems natural that loans are best refinanced when the interest is still low. There is however another issue which may affect new property owners who purchased their houses only a couple years ago, and especially those who opted for a bad credit mortgage. Mortgages for people with bad credit are a great way to get on the property ladder and stop wasting money by paying rent, even at the price of increased interest. The problem is, what are those people going to do when interest rates rise and property prices drop instantly creating negative equity?
Bad credit mortgage is a fine financial option to start, but no-one would like to be stuck with it for the whole loan term. The usual course of action is to refinance as soon as possible - ideally in the third or fourth year to reduce the interest on remaining capital.
If Jonathan Davis's prediction turns out to be true, that would by far be the worst case scenario for all buyers who tried to take advantage of low property prices during the 2007 - 2009 price fall and took out a high interest mortgage.
