Between the 1988–1992 Norwegian banking crisis, one of the most significant notions involving the Norwegian economy and markets revolved around interest rates — and when they would eventually increase that followed by the financial recession in the global pandemic COVID-19. This, however, resulted in the “record low zero percent rates” in Norway, as this page says.
As a result, interest rates have sunk rock-bottom. In fact, Norway cut rates three times to combat the pandemic and recession.
While this may appear bad news for many people’s bank accounts and saving habits, it actually benefits home buyers, businesses, and stock market investors. In a nutshell, this gives an advantage for borrowers to benefit from the lengthy period of ultra low interest rates.
When you want to consolidate your existing high-interest debt, refinancing is one way to lock in a low interest rate. At the same time, refinancing can be secured or unsecured through consumer loans. On the latter, you can pay off your other loans without risking any of your assets as collateral.
Read on as we tackle all about refinancing.
What Is Refinancing?
Refinancing is essentially the process of debt substitution, wherein the borrower “resets” or “renews” their debt obligation by applying for a new one (usually under another company on different terms). Thus, you’ll be borrowing money from another lender.
Typically, refinancing is best used for various reasons:
- To get a lower interest rate
- To get a flexible loan from an adjustable-rate to a fixed rate
- To spread out the payment into small monthly financial obligation
- To shorten the term of your existing debt
Here’s What You Can Refinance:
Mortgage
Housing is, without a doubt, the most significant purchase most of us will ever make. With that being said, having a mortgage is probably breaking your bank. So take this as a sign to refinance your mortgage!
Although experts predict mortgage interest rates to rise in 2021, they remain low compared to before the pandemic. That means you may still be able to do Refinansiering and save money from your mortgage payments. Rule of thumb: if you can reduce your interest rates to 1-2%, then it’s a great incentive to start refinancing your mortgage.
A 30-year fixed-rate refinance currently has an average rate of 3.32 percent. At the same time, a 15-year fixed-rate refinance has an average interest rate of 2.68 percent. It isn’t the lowest, but definitely cost-effective. And with rates predicted to stay low until the next few years, it’s a good thing to start refinancing your home.
Existing Loans
Debt refinancing is the process by which a borrower applies for a new loan that has reasonable terms than an old contract and can be used to pay off the old one. Or simply if you want to take advantage of a lower interest rate and a better credit afterwards. This allows borrowers to reconfigure their loan to obtain a lower monthly payment, a different term duration, or a more easy financing structure.
It’s logical to refinance if you think you cannot keep up with your current bill payments and other expenses and need to find paying off the debt more affordable. You can apply for a personal loan, which has a diverse application on whether you want it to pay for your medical bills, student loans, etc. Personal loans, as opposed to credit cards, typically have lower interest rates than the latter. Because of this, debt consolidation loans may be a viable option if you want to save as much money as possible on interest while getting out of your other existing debts as quickly as possible.
Credit Debt
While credit card debt is typical, paying a high-interest rate on your balance if you have failed to pay off your debt can be expensive! According to a Norwegian survey, more than 1/4 of the respondents have amassed debt on their credit card, with the vast majority of these people only paying the bare minimum of their total monthly dues. As a result, they have difficulty paying off their debts due to the growing interest.
As the Federal Reserve says, credit cards have an average annual percentage rate of 16.28%. Still, your rate may be higher or lower depending on your credit score and other factors. Unlike credit debt’s interest rates, refinancing offers a relatively small interest rate.
Refinancing is the best way to maintain your good credit. At the same time, you’ll be able to save money and earn peace of mind. You can take advantage of a zero percent balance transfer offer and guard yourself against other debts. Just make sure to maintain your credit score of 680 or higher to ensure you’re a qualified borrower.
Car Loans
If you’ve been taking a hit by the pandemic, and you don’t know how to pay off your auto loans— refinancing your car may be a great move. This will not only reduce your financial burden, but you can use it to take advantage of lower interest rates.
When you refinance your car, you are essentially taking out a new loan to pay off your existing loan balance. It might be worthwhile to refinance your car loan if you have a high interest rate on your existing loan, especially that the rates are dropping significantly. Thus, you may be able to obtain better terms and interest rates that are aligned with your current financial situation and long-term goals. However, refinancing isn’t a one-size-fits-all solution. There are several factors to keep in mind and one of which is:
Your Financial Situation
For auto loan rates, lenders consider various factors, including your credit scores and debt-to-income (DTI) ratio, which is calculated by dividing your monthly income by the total amount of debt you owe each month. Generally, your debt-to-income ratio should be below 125% to qualify. If you have an improved credit, this will benefit you from qualifying for a lower interest rate.
Thus, improving your credit health and lowering your debt-to-income ratio can result in better rates on your refinanced loan. So it is something you can take advantage of in the long run.