Why Refinance
When interest rates drop, refinancings usually increase. And there's just one reason: money.
"If you can do a no-cost refinance and save money today, there's no reason to wait any longer," says Ilyce Glink, award-winning author of several real estate books. "Anybody who can save money should refinance."
Refinancing means essentially that you get a new mortgage to pay off your current mortgage. Sound redundant? Actually, it's more like trading in your car for a more efficient model. There are several reasons to consider refinancing:
- You can reduce your interest rate. You may have financed your first home when interest rates were 12 percent. You've recently noticed that they are now hovering around 7 percent. After kicking yourself a few times, you started thinking about refinancing. It may be a good move. A lower interest rate will decrease your monthly payments. If you plan to remain in your home at least five to seven years longer, the lower payments will offset the costs of refinancing.
- Interest rates are on the rise-and your adjustable-rate mortgage is about to adjust. You may have negotiated a low initial interest rate for the first three years of your ARM. If an adjustment is scheduled for a time when interest rates are high, you may want to consider refinancing to a fixed-rate mortgage or another ARM that offers better protection.
- You want more stability than your ARM can give. Let's face it: watching interest rates rise and fall is no fun for anyone who has an ARM. If you want to get off the roller coaster, consider refinancing to a FRM, particularly if interest rates are low.
- You want to speed up equity growth. Perhaps your financial situation has improved dramatically since you first financed your home. You may, therefore, want to shorten your term to a 15-year mortgage. Unless interest rates are substantially lower than they were when you got your original mortgage, your monthly payments are likely to rise. But on the flip side, you will decrease your total interest costs and own your home free and clear much sooner.
- You want to tap the equity you've built up in
your home. Maybe your kid is going to college or you're planning to
purchase a vacation home. If you've lived in your home for many years,
refinancing can make it happen. Since you've substantially increased
your equity, a new mortgage could save you tens of thousands of dollars
in monthly payments. The difference can help you make those big
purchases. However, keep in mind that a home-equity loan, rather than a
new mortgage, may give you just as much cash for fewer charges and a lot
less grief.
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| REFINANCING GUIDE |
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STEP 1 - Refinancing
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STEP 2 - Closing costs
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STEP 3 - Top 10 mistakes |
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