Compare current loan and refinance option

• 1). Determine the current loan interest rate and total finance charge paid on the current loan. Include all late charges and other fees paid during the term of the loan so far.
  
  
• 2). Calculate the loan interest rate and total finance charges the new loan will cost. Include any closing costs associated with finalizing the loan
  
  
• 3). Compare the time remaining on the existing loan and the time incurred with the new loan. Even a less favorable existing loan costing much more but completed in a short time may be better than taking on a new loan for a long time period.
  
  

Calculate the appreciation or depreciation of the finance product

• 1). Determine if the value of your purchase has gone up or down since closing on the existing loan. Houses usually go up while automobiles, rolling vehicles, appliances and other major purchases go down. Be sure to asses the market value of the home and not the tax value. Tax values oftentimes have little reflection on what the market is currently supporting in your area.
  
  
• 2). Calculate the average change in market value for the product for given time periods. You may choose to use weeks, months or years.
  
  
• 3). Compare the current market value of the product with the costs involved with refinancing and assuming a new loan.
  
  

Figuring out if it is worth refinancing

• 1). If the product is depreciating at a rate the collateral value will be zero before the end of the new loan term, do not refinance. If the collateral has no value and the loan is called by the lender, other assets and value will be assessed to pay the full loan value. In other words, if the car is worthless and is repossessed, lenders can look at houses, investment portfolios and other assets to get their money back.
  
  
• 2). If the product is appreciating but not at a rate that will provide adequate collateral on the new loan, do not refinance. It may appear a good deal with lower monthly payments but if the loan is called and the value does not equal the loan plus accrued interest and fees then other assets will have to be liquidated to satisfy the loan.
  
  
• 3). If the loan balance over time is less than the depreciated value and the new loan results in lower payments and improved cash flow, then refinance. There is no downside to having more money and less debt.
  
  
• 4). If the loan balance over time remains less than the appreciation of the product, then refinance. As the value of the product (usually a home) goes up and surpasses the loan value then the borrowers.position will always remain positive.
  
  
• 5). Always consider the ramifications of taking on higher payments no matter the terms of the loan or the value of the collateral. Bringing in some money with a refinance deal may sound good in the short term but more money out every month in the long term could lead to cash flow issues in the future.