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Refinance And Mortgage - Mortgage Refinancing Tips

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Refinancing your mortgage can potentially mean big savings. Depending on how you structure a refinanced mortgage, it could mean a faster pay-off, increased income tax deductions, or extra cash. On a $200,000 30 –year mortgage, for example, refinancing from a 7% interest rate to a new loan with 5% interest would result in a savings of over $250 per month on your monthly payment and over $92,000 over the life of the loan.

Depending on your needs, a refinanced mortgage can provide financial help in a variety of ways.
• With a reduced interest rate or by extending the length of your loan, you can have a lower monthly payment and more available cash each month.
• Going from a 30-year mortgage to a 15-year mortgage, you will probably have a higher monthly payment, but you could pay off your loan and be debt free sooner.
• If you have enough equity in your home, you could borrow more than the current balance on your mortgage. The extra cash could be used to pay down credit card debt or other installment loan debt. Interest on debts like credit cards is not deductible on your income tax, but interest on a mortgage or home equity loan is. Transferring your debt in this way creates a deductible expense for you.
• If you currently have a first and second mortgage on your home, you could combine these two loans into one new loan. The result of combining these two loans into one new loan is often a lower total monthly payment.
• If you currently have an adjustable rate mortgage (ARM), you may be able to refinance into a fixed-rate mortgage with a lower interest rate. Locking in a better rate for the long haul can equal significant savings.
• Your current mortgage probably includes PMI if you had less than 20% equity in your home at the inception of the loan. If you now have more than 20% equity, you may be able to refinance and eliminate the PMI payment.

While refinancing can be a wise choice, there are some guidelines to keep in mind about when and when not to refinance.

When to refinance:
• If you have at least 10% equity in your home. If you have less, you’ll have trouble getting the best rates, your refinancing options are limited, and you will likely have to include PMI payments in your new mortgage.
• If you can lock in a lower rate than you currently have. The general rule of thumb is that rates should be at least 2% lower for refinancing to pay off.
• If you’ve had no late payments for at least the last 12 months. Being on time for at least a year should mean more favorable interest rates.

When not to refinance:
• If your property value has decreased. Lower property values mean less equity in your home. This affects the loan options you have available and your ability to tap into your home’s equity.
• If you are close to paying off your current mortgage. There are costs associated with refinancing, and it takes some time for the savings of refinancing to make up for the costs. If you are close to paying off your current mortgage, you may not have time to recoup those costs.

If you decide that refinancing makes sense for you, keep in mind these tips when working with potential lenders.
• Apply for pre-approval with a variety of lenders to try to get the best rates, but be sure lenders are not pulling your credit history at this point. Try to put that off until you have chosen the lender you want to work with. Too many credit inquiries can lower your credit score and prevent you from getting the best rates.
• Be sure your current mortgage has no pre-payment penalty. If it does, this could change your break-even point on a new mortgage.
• Interest rates and closing costs should be the main factors you consider when comparing lenders. These two factors will have the greatest impact on your bottom line.
• Once you’ve selected a lender, get interest rate and closing cost information in writing as soon as possible. You don’t want any misunderstanding or surprises later in the process.

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