What is refinancing?


Often a major life change is involved when people find themselves falling behind with their finances. Redundancy, relationship breakdown, long-term illness and other unforeseen events are all examples of how people can lose control of their finances.  

It mayIt may seem like a good short-term solution with consumer loans and credit cards, until you lose control and the debt collection notices and payment remarks appear. If you have several different creditors to deal with, the situation quickly becomes more complicated.

But help is available.  

Advisers at Kraft Bank
Advisors at Kraft Bank can help you with your refinancing questions, get in touch if you want to talk to us!

Refinancing secured by residential property - What does it mean? 

There are many ways to take out a loan. Credit cards and consumer loans are examples of unsecured loans. This means that you can borrow money without providing anything of value as collateral to the lender in return for paying a higher interest rate. A mortgage is an example of a secured loan. The bank giving you the loan takes a mortgage on your (or someone else's) home, in return for lending you money at a lower interest rate.  

Refinancing means moving or pooling loans into a new loan, usually with better conditions. For example, a lower interest rate or longer payment period.  

Home refinancing usually means combining your existing unsecured loans into a new mortgage. This gives you a lower interest rate and a longer payment period. In other words, the loan costs you less and, in addition, the monthly costs are lower because they are not repaid as quickly.  

For some, this is the solution to avoid debt collection and payment defaults. 

Who is mortgage refinancing suitable for?

If you own a home and have unsecured debts that you are struggling to pay, home refinancing may be the solution for you. Many of our customers already have one or more payment defaults, complicated finances, or have been refused refinancing by their regular bank. This is not an obstacle for us. 

If you don't own a home, a real estate guarantor may be the solution. In this case, for example, a family member must pledge their home as security for your loan. We then take a mortgage on your guarantor's home, but you pay the interest and repayments. 

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Refinancing credit cards

Credit cards are a form of unsecured debt and usually carry an interest rate of around 20%. On your credit card bill, you can also choose to pay only a minimum amount per month, instead of paying the whole bill. This can cause the debt you have taken on to increase faster than you can pay it off.  

With home refinancing, you get a lower interest rate and a longer term on your mortgage, which means you still pay off your mortgage every month.  

It is important to remember that although the interest rate on the mortgage you get with us is higher than with your "normal" bank, it is significantly lower than the interest rate you get on your credit card. If you have many credit cards that are highly leveraged, mortgage refinancing may therefore be a possible solution for you.   

Refinancing consumer loans

Consumer loans are also a form of unsecured debt, but usually have a lower interest rate than credit cards. Such loans are usually repayable within a short period of time, usually a few years, and therefore become a major additional expense for quite some time that can make your finances unmanageable.  

If you have taken out several consumer loans, secured refinancing can be a solution to lower your monthly expenses and the cost of the loan. Lowering the interest charges on a large loan and spreading the loan over a longer period of time can help you lower your monthly costs. For some people, this is what it takes to keep their heads above water financially. 

Why does the bank need a mortgage as collateral to refinance? 

In order to refinance loans that have already defaulted, we rely on some form of collateral. Collateral in housing allows us to offer a lower interest rate than is usual for credit cards and consumer loans. The interest rate is not as low as you get in a regular bank, but it is significantly lower than what our customers often have before. This leads to lower costs per month, which can make everyday life easier for many people.   

This is why we say that if you can put up your own or someone else's home as collateral, we may be able to help you out of your financial difficulties.    

Read more about why the bank needs to have security on your home here.

What is the difference between consumer loans and home refinancing?

A consumer loan is an unsecured debt, often with a high interest rate, that can be used to cover unforeseen major expenses. Because of the high interest rate, it pays to pay it off quickly if you can.  

Mortgage refinancing is used to gather all your debts in one place to get better terms than you have today. As the bank takes security in the home, the loan is considered secured, and therefore we are able to offer lower interest rates than what you get on consumer loans and credit cards.    

 Read more about unsecured and secured debt here 

How do I apply for home refinancing? 

The application process doesn't take long, but you may want to have some numbers checked.  

First of all, we ask for personal data about you and about your co-borrower, if any. Furthermore, we need information about your income which includes: 

  • Payment 
  • Pension 
  • NAV 
  • Income from rentals 
  • Contribution 

The last step is to provide information on loans and debts. Here it is best if you can provide as much information as possible. All debts are relevant, for example: 

  • Mortgage 
  • Car loans 
  • Cabin loans 
  • Student loans 
  • Credit card debt 
  • Consumer loans 

If you are not sure whether you have included all your debts, we recommend that you check the debt register 

Finally, we also ask you for a power of attorney so that we can easily obtain more information about you and your situation if we need it. You sign this authorisation with BankID.  

How long does it take to pay off debt that has been refinanced?

It's important to remember that we can't remove some of your debt, but we can make it more manageable. We do this by baking your debt into a new mortgage, extending the payment period of your original debt, which is paid off over 25 years. This, together with an often lower interest rate, means that your monthly costs are lower  

Our goal is that once you have regained control of your finances, you should be able to move your loan back to a "regular" bank with an even lower mortgage rate. How long this will take varies, but the most important thing is to clear up debt collection and payment remarks. It may also be worthwhile to show a new bank that you have managed to stay in control over time and have managed with the funds you have left.  

Therefore, you are not supposed to have a mortgage with an interest rate of around 6% forever, but for a period of time so that you can catch up with your bills. Once you have your finances under control, you are free to choose a new bank. 

Why refinance with Kraft Bank?

We want to help people with a challenging economy.  

Everyone who applies for a loan with us will receive feedback from a financial advisor, with information on what it takes for us to help with refinancing.  

It is also a requirement from our side that getting a loan from Kraft Bank should be helpful. We therefore only make offers to those who will improve their financial situation by refinancing their loans with us. That's what we call providing real help.

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Financial first aid - refinancing

This article is part of the category Economic first aid , a collection of articles that deal with topics related to a strained economic situation, such as reminders and collection, payment notices, garnishments and forced sales. Read more about Financial first aid

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