Which Is Better: Reevaluate or Refinance the Loan?
Most people know that you can refinance a loan, which involves getting a new loan at better terms and paying off the old loan. Refinancing is most often associated with a home mortgage, but you can refinance any loan if conditions permit and you may be able to find a better deal. Mortgage refinancing is so common that it’s pretty standard advice for new homeowners: watch your interest rates and refinance if they get a certain level below what you’re paying now.
But there is another way to improve the shape of your debts: revaluation. Like refinancing, repricing has several distinct benefits that are worth exploring if you want to cut costs or the length of your current loan.
What is revaluation?
When you refinance a loan, you usually go to a new lender and issue a new loan with better terms. You use the new loan to pay off the old loan by transferring your business to another bank. Anyone who has ever refinanced their mortgage knows that this can be a long and complicated process. All that paperwork you had to deal with when you took out your original mortgage? All the dues you paid and the forms you signed? You pretty much do it all over again.
Revaluation, on the other hand, keeps the process in the same lender. Basically, you go to your bank and say, “Hi, I noticed that you have much better credit terms these days than when I made the loan – can I upgrade to these nice new low rates?” Instead of outsourcing your business to a rival bank, you keep everything inside. This can be confusing because many lenders refer to this as refinancing and the terms are often used interchangeably.
While it’s not that much different from refinancing because they ‘re essentially the same thing, there are some distinct benefits of repricing your current loan instead of refinancing it:
- Costs. Most loan reassessments involve a simple fixed fee from your bank, usually in the $500 to $1,000 range, depending on the size of the loan. Refinancing, on the other hand, causes a lot of additional costs because you go through the entire loan process all over again. When you stay within your current lender, all of this work is already done. Refinancing can cost you several thousand dollars and, if you are still in the lockdown period, you may pay a fine on top of that.
- Time. If you have a mortgage, you know that banks are ice cold when it comes to turning on the money faucet. It’s the same with refinancing – the process can take months. Revaluation, on the other hand, is usually a simple internal process at your bank and is usually completed within a few weeks.
Those are two pretty huge benefits, so it’s worth taking the time to look into revaluing instead of refinancing. If you find better rates or terms at another bank, it’s also worth contacting your current lender and seeing if they’ll change your current loan to keep your business going. In the worst case, you are told “no” and have to go through the more time-consuming refinancing process.
This doesn’t just apply to mortgages: credit cards often reprice your loans without consulting you, changing your interest rates based on ” behavior-based repricing “, which is usually punitive (your rates go up, usually due to missed payment). but not always. And you can re-evaluate any credit you have, as long as the conditions permit and your lender agrees. It is important to note that your lender does not need to re-evaluate your loan – your bank may insist on a full refinance with all the associated fees and delays. But it’s probably worth investigating.
Bottom line: If interest rates are favorable to you and you want to refinance your loan, look into repricing first. This can save you time and money.