Refinancing may seem like a viable credit financing option in many circumstances. It involves replacing an existing loan with a new loan using the fresh mortgage to pay off the first one. Borrowers often choose loans with lower interest rates to refinance old loans. Also, a refinance mortgage allows borrowers the freedom to channel more savings into their savings account.
Money has an inherent time value. Financial experts recommend prioritizing savings to capitalize on the time value benefit. While refinancing allows you to retain your savings instead of using them to pay off debts, the arrangement can impact your credit score negatively.
Refinancing Can Cause Your Credit Scores to Drop
Constant refinancing can cause your credit score to decrease. Banks and credit rating agencies may be skeptical about borrowers who regularly refinance their loans. The bank considers your credit score for all significant banking transactions and loan sanctions. The loan may also appear as a new loan in bank records. A lower credit score can deprive you of several credit benefits.
However, experts believe that the savings benefits that flow from refinancing far outweigh the disadvantages of a lower credit score. You can work with a finance consultant to find ways to structure your refinance options appropriately.
Long-Standing Debts are More Valuable
Old, long-standing debts are better for your credit score than a new refinance mortgage. Your credit score is allotted primarily based on your loan repayment habits. A long history of timely loan repayments and interest payments can help you gain a better credit score.
It may be best to retain your old debt and not choose refinancing to pay off the old debt and create a new loan. New debts don’t come with reliable payment histories. Old loans also come with several other financial and customer benefits. Its also critical to ensure that you don’t skip mortgage payments on the assumption that your refinance mortgage will go through.
Multiple Loan Applications and Credit Inquiries
Lenders review your credit scores each time you apply for a loan. Constant refinancing will also lead to multiple credit inquiries. The lender may even call for a “solid inquiry” or a “hard inquiry” of the potential borrower’s credit reports.
Refinancing will also lead to multiple loan applications. The inquiries will reflect on your credit reports for up to two years and could impact your credit score negatively.
Banks and other non-institutional are reluctant to lend money to borrowers who take frequently apply for loans. Multiple loans could have negative impacts on your credit score. The transactions will also be recorded in your payment reports.
Retaining your old loan or opting for a new loan may help you gain higher credit scores.
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At Pacific Lending Group, our primary goal is to help clients with their mortgage needs and get the best interest rates in the market. You can find out more about us by visiting our website or calling our experts at 954-227-4727