How refinancing debt can lead to financial independence

Refinancing is a tool which can yield significant financial benefits. With the advent of online searches, an ever increasing amount of people choose to refinance their debt. Depending on the circumstances, a debtor may save a substantial amount of money.

Here we take a closer look at the most important benefits of refinancing.

Reduce the annual percentage rate (APR)
Depending on which type of loan you choose to refinance, there’s potential to save a significant sum of money. A good illustration would be the refinancing of mortgages, where small APR differences can lead to large cuts in monthly downpayments.

Here is an example. A $270,000.00 mortgage with a 4.5% APR and 15 year down payment plan will equal a monthly installment of $ 2,065.48 (according to the website Bankrate.com). 

You end up paying a total of $371,787.00. Of which the interest constitutes $101,787.

Now let’s look at the effect of a 0.5% reduction in the monthly APR. The down payment term remains constant, but you end up with a substantially reduced interest charge. Total interest will equal $ 89,488.00.

Other benefits

Refinancing is perhaps most favorable in situations where the debtor carries a lot of expensive debt. Common examples would include such things as high credit card balances, or consumer loans with zero collateral.

These loans can easily carry an APR in excess of 20%, which may lead to a debt spiral. Besides cutting the total interest costs, you may also “pool” several loans into one portfolio.

In many cases the debtor has outstanding debt with several different lenders. Unless you’ve set up a payment plan or ACH agreement (automatic clearing house), you may miss out on one or more payments. Through refinancing you have the chance to wipe out several small loans, in return for a single debt agreement.

Key benefits will include enhanced oversight and simplified payments.

How to find the best offers?
Depending on the jurisdiction where you live (i.e. the US or Europe), the rules will differ when it comes to refinancing. It also depends on the specific type of loan you're seeking to refinance.

On average, you can’t refinance a mortgage without paying some sort of penalty to the bank. However, unsecured loans are for the most part available for refinancing without any strings attached.

Make sure to collect different offers before making a final choice. In Europe there are few restrictions attached to the promotion of financial products online. 

One such example is Norway along with other Scandinavian countries, where both marketers, banks and third parties co-operate and promote greater transparency. Some companies, such as refinansiere.net has decided to specialize within the niché of refinancing.

This may be considered an advantage for the end consumers, who in return gain easier access to market data. The advent of online comparison services had led to increased competition and better terms for the people lending money.