Tuesday, September 29, 2009

Why you should refinance

Why should a homeowner refinance? One of the best reasons for refinancing is to lock yourself into a lower rate than you anticipate the market will bear in the future, resulting in lower monthly payments. In addition, during the refinance, you can work with your lending institution and/or mortgage broker to change the term of your mortgage. If your home value has increased, refinancing your existing mortgage will allow you to extract some of the equity in your home.

There are several factors you should consider when you are refinancing your mortgage.
  •     Am I able to afford the new payments?
  •     Would I like to remove some equity from my home?
  •     Are interest rates going to drop/climb in the near future?
  •     How long will I live there?
When you look into refinancing your mortgage, you should keep in mind that the total cost of refinancing often runs between 3 percent and 6 percent of the total amount borrowed, and it may take several years to offset these costs even if you lock in a lower interest rate.

If you expect to move soon, the lower interest rate may not offset the costs of processing the new loan. Therefore, a borrower should take into consideration how long he/she will be living in their home after refinancing. In addition, it's important to consider the tax implications of refinancing. The deductibility of interest paid up front as "points" as well as less interest to deduct from your taxes should all play into your considerations.

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