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By Michael VanDeMar
There are several reasons that might make someone consider refinancing their
existing mortgage. One would be to get a lower interest rate than what they
currently have, thereby reducing monthly payments and lowering the overall
cost of the mortgage. Another is to shorten the length of the loan, which can
save quite a bit in interest payments. Thirdly, someone may have other debts
that they wish to pay off, and refinancing may provide them a means of
consolidating that debt into one overall lower payment.
A lower interest rate isn`t the only thing that should be taken into account
when thinking about refinancing. There are costs and fees associated with
refinancing your mortgage. The bank will charge fees, there will be costs for
a new inspection and a new appraisal, title search, and so on. The process
that is gone through is very much like the process that one goes through on
getting a first mortgage. It requires a new application with a new credit
check, survey, and appraisal. As it is with a first mortgage, this can be a
long and costly process.
In general, it makes sense to refinance if the interest rate on the new loan
is at least two percentage points lower than that of the current loan,
although this is not always the case. Some things that need to be taken into
consideration are the total cost of the refinancing, the total monthly
savings, and how long you plan to stay in your house after you refinance. You
can calculate how long it will take you to break even on refinancing costs by
dividing the total cost of the refinance by the monthly amount you will be
saving. For example, if the cost is $2,500, and you reduce your monthly
payments by $100, then it will take 25 months to start seeing the savings
from the reduced mortgage rate. If you plan on staying in your house longer
than this, then it may just make sense for you.
Another reason that someone might consider refinancing is if they are trying
to consolidate debt. In such cases, there is also the tax impact that one
should look at. Many loan types are not tax deductible, whereas mortgage
loans are. Therefore for that reason alone it may be a good idea to
consolidate outstanding credit card debt, student loans, car loans, as well
as others.
Some people may not have a choice about refinancing, it is a must for them.
This happens in cases where they have a loan with a balloon payment coming up
and no conversion option. In instances like this the best bet is to refinance
the mortgage a few months before the balloon payment is due.
If you do decide that the costs associated with doing a refinance outweigh the
benefits, you should ask your bank or financial institution if you can get
some of the terms that you want by agreeing to a modification of your current
loan. However you choose to go, remember that it always makes sense to
consult with a mortgage professional before making your move. This can end up
saving you both time and money. You should also do research before making a
decision. Spend some time on the web familiarizing yourself with what you are
getting yourself into. Take the time to read up on and understand what your
options are.
More on Mortgage Refinancing (http://www.bettermortgagerefinancing.
com>Mortgage).
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