Refinancing is the process through which one takes out a new loan with better terms and conditions to offset an existing loan. This concept is the same world over however; individual government policies play a big role in how the process will play out in their country.
If you live in Norway and have taken out loan in the country, it is necessary that you understand how things work in the country. Maybe the loan is becoming a burden and you want to know how to pay off the debt faster or to reduce your monthly payment; then you need to read and take note of the tips in this article.
Here, we will take out time to discuss refinancing in Norway and how you can make the best of it so stay with us.
Understanding the Basics of Refinancing
Like we already mentioned, this is basically the process through which a borrower takes out a loan with better terms and conditions to pay off an existing loan or multiple loans. We all know that you have to pay interest on every credit facility you take out. In addition to that, there are also some administrative fees that you pay. These extras that you have to pay on multiple loans usually add up to a lot of money at the end of the day.
To this end therefore, if you have multiple loans, the best course of action may be to take out one single loan to pay off all the credits that you have. This will help reduce the monthly payments you have to make and the interests that you pay at the end of the day.
Reasons for Refinancing
Although we have mentioned 2 reasons why people will choose to refinance a debt, we will go further to expatiate on these reasons:-
Lower Monthly Payments
Let’s use mortgage refinance to explain this point. So assuming you refinance a 30 year term mortgage, your refi mortgage will restart for another 30 years and the equity you have earned from the making monthly payments on the mortgage will reduce your principal. This will in turn reduce the amount you have to pay on a monthly basis. This helps you to free up some cash and enable you carry out other projects on your list.
The advantage of this is that you will free up some cash which will improve your cash flow. The disadvantage however is that you will pay more in interest because the loan term reset to start afresh.
Lower Interest Rates
Another major reason why many consumers seek refi is because interest rates have fallen after they closed out on a loan agreement. This switch can help you save thousands of dollars or NOK depending on how much time you have left on the repayment duration and also the difference between the interest rate on your current credit and how much the refi is offering.
There are also other factors that will affect the total cost of your refi loan. You can visit www.besterefinansiering.no/ for more details. You can also discuss with your current lender first to know whether they can adjust some of these factors and fees that affect the total cost of your current loan. This will help you know how to negotiate if you have to go with a new lender.
Ability to Switch to a Fixed Interest Rate
Borrowers who signed off on an ARM (adjustable rate mortgage) are always on the lookout for better loan terms once the initial fixed term is coming to an end. They look for a refi credit facility that can help them lock in a fixed interest rate.
The advantage of this is that they can be protected from any future increase in interest rates. With a fixed rate, a borrower is able to plan their monthly payments because it is now predictable. On the flip side however, if by any stroke of luck, interest rates falls, the borrower will not be able to enjoy that reduction.
To Get Some Cash
A mortgage refinance can help a borrower free up some cash for other projects by borrowing against the equity in the home. This is usually a better option than selling your home because you cash out based on the equity in your home. This is known as Cash-Out Refinance and the money you get can be used for any project like we mentioned.
This is cheaper alternative than credit cards and other types of consumer loans. However, it is one option that should not be taken lightly; you need to consult a trusted financial advisor so as not to destroy your home equity or elongate the period of your indebtedness and at the same time paying more by way of interest.
Government Regulations for Refinancing
Having seen the reasons why people opt for refinancing their debt, you will agree that these reasons make sense. However, the transaction may not make sense if you do not understand government regulations on refinancing. That is why we will share a summary of some of those regulations.
These lending regulations do not stop borrowers from getting refi loans from the same bank neither do they stipulate the lender to use however, there are some ground rules as follows:-
For Mortgage Refinancing
- Amount must not be higher than the sum of the current loan.
- The collateral must remain the same
- The repayment duration must not be longer than the duration left on the existing loan
- The requirements for the repayment of the principal are the same or sometimes even stricter than that of the existing credit facility.
For Consumer Loan Refinancing
- Amount approved cannot be higher than the sum of all the loans (for debt consolidation) or the single existing loan.
- The interest rate and other fees or cost of the new loan cannot be higher than the one about to be replaced.
You can see from the above that there are some variations from what is acceptable in other countries. That is why we recommend that you are fully aware the regulations governing refinancing in Norway before you proceed to apply for it.
Tips for Refinancing in Norway
Before you start the application process, ensure that you meet the criteria for eligibility and they include the following:-
- You must be resident in the country
- You must have a valid tax number. Click here for more details.
- You must have a verifiable means of income
- You must be of legal age which is 18 but most banks require that the borrower is at least 23 years unless they are applying with an older co-signor.
After you have ascertained your eligibility, you can then proceed to check out lenders. As you check out as many lenders as possible, you can request for pre-qualification to help you know how much you can possibly get and the total cost of the refi loans.
Refinancing might be the best way of getting out of a difficult debt or consolidating multiple debts. However, a good number of people have gotten into trouble by not doing their due diligence before taking this step. In this article, we have shared some information that we believe will help you to make informed decisions. Bear them in mind as they will come in handy someday.