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Should I Refinance?

Refinancing your home can be a viable way to cut your costs by lowering your monthly payment or interest rate, consolidate your debts, or simply to raise cash for a large purchase. It's important to consider several factors before jumping on the refinancing bandwagon, however.

Questions To Ask Yourself:

  • Have interest rates fallen 2% or more since you obtained your original mortgage?
    If interest rates have fallen more than 2% and you can obtain a fixed rate loan, both the monthly interest and the long range interest can be substantially reduced by refinancing. If less than 2%, the savings is often not enough to warrant refinancing.

  • Do you have an adjustable rate mortgage and need to convert to a fixed rate mortgage because of the uncertainty of future interest rates?
    If interest rates are on the climb, it may be to your benefit to lock in at today's rate rather than face a much larger rate in the future.

  • Do you need the money for a necessary big expense such as college tuition?
    The need for a large expenditure is a very common reason to refinance. College tuition, for instance, can be overwhelming even for a financially well off family. Investment in our children's future can far outweigh the expense and time involved in refinancing.

  • Do you have large, non-mortgage debt at high interest rates to pay off?
    Debt consolidation is another common reason to refinance. If you are paying very high interest rate on large credit card balances, refinancing can be an effective way to reduce the interest rate with a lower monthly payment.

  • Would you be investing in home improvements that will substantially increase the value of your home?
    Necessary home improvements are another common reason to refinance. If the improvements increases the value of your home, the investment in a refinanced mortgage may be worth your time.

There could be any number of possible reasons to refinance, but you do have to study the situation first. Keep in mind that all loans carry some cost. If your new mortgage costs you $5000.00 to obtain, and it lowers your payment by $100 a month, it will take you 5 years before the savings covers the cost of the loan.

Also remember, that refinancing a 30 year mortgage after you've already made payments for a number of years, will mean that you would be paying for your home for that number of years plus the term of the new loan.

Each homeowner must decide for themselves whether refinancing can benefit them. It's important to talk openly with your lender and ask questions. The web is a valuable resource for researching mortgage and real estate related topics. Make sure you have the knowledge you need before you sign on the dotted line.


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