As of today, Morbes Bank’s key policy rate is 1.5 per cent, and the forecasts indicate that it will remain at a low level through 2016. What does this mean for you as a consumer? And how will you be affected?
Due to a low key interest rate, several banks have recently reduced their interest rates on their loans. Then it may be beneficial for you as a consumer to refinance your loans. If you are on a floating rate loan, you may want to meet with the bank to renegotiate your current interest rate, but if you have fixed rate or credit card debt, it may be profitable with refinancing.
What are the Benefits of Loan Refinancing?
Loan refinancing means that a consumer takes out a new loan to repay an older loan or to collect more small loans under a new and larger loan. You can’t get any debt cleared, but you can get better interest rates if you take out a new loan after the interest rate has been lowered. Therefore, right now it may be a good idea for you as a consumer to check what kind of conditions you can get from different banks. Other benefits of refinancing are that you can reduce fees (by accumulating more small loans under a larger loan), and get a better overview of the private economy.
Let’s look at a fictitious example of expensive loans and credit card debt.
In the example above, the consumer has a total loan amount of $ 75,000 and a total expenditure per month of $ 1,302.85. $ 1,197.85 is interest expenses, while $ 105 is invoice fees. By refinancing after a reduction in interest rates, it is possible to save money on both interest expenses and fees.
After the refinancing, the total expenditure per month is $ 991.25. Here we have reduced the cost of fees by pooling all small loans under a larger loan, and we have got better interest rates after the refinancing. In total, the consumer in this example has saved $ 311.6 per month *. This frees up funds that make it possible to pay down debt faster, or free up funds for savings. In the example above, the consumer has also got a better overview of the private economy and only has to deal with a loan.
Regardless of the size or number of loans / debts to be refinanced, it is very important that you as a consumer have complete overview of the total costs before looking for new offers, so that you are sure that a refinancing will pay off.
When refinancing mortgages, the value of the home can also contribute to better interest rates. If you think your home has risen in value, it may be worth getting a new valuation or valuation. If your mortgage comes within 60% of the home’s value, it is often a good basis for renegotiating the terms of your current loan.
Let’s look at a fictional example:
Loan amount: $ 2,350,000
Purchase price: $ 3,000,000
New tariff: $ 4,000,000
In the example above, we see that the mortgage is 78.3% of the purchase price when the property is purchased. When the value of the property has risen to $ 4,000,000, the mortgage is 58.75% of the value of the property. The loan has then fallen below 60% of the value of the home and this can provide a basis for changing conditions ** at most banks in Norway.
The consumer and the example are fictional and intended as a clear example. The conditions you get will vary from person to person.
The interest rate conditions on mortgages are also governed by other factors affecting interest rates on all types of loans, such as assets, other loans and ability to pay.