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Should I Refinance My Mortgage

    Refinancing a mortgage can be a smart financial move that could save you money in your monthly mortgage payments or in overall interest costs over the life of the loan. Generally, refinancing is a good decision if it will save you money, help you build equity, and allow you to repay the mortgage more quickly. Refinancing can be a good financial move if it lowers your mortgage payments, reduces your loan term, or helps you build equity faster.

    This refinancing strategy also helps you save money on interest, since you only have to make your mortgage payments in half as long. While rate-and-term options are supposed to help you save money, cash-out refinancing could help you borrow more. Using equity in your home may be better than taking out a personal loan or loading up your credit cards, since cash-out refinances typically carry lower interest rates than most credit cards.

    Consumers who need small amounts of cash over a short period may want to consider credit cards or taking out a non-secured personal loan, although those usually carry considerably higher interest rates than loans secured with appreciated assets such as second mortgages. You might want to convert an adjustable-rate mortgage into a fixed-rate loan with stable monthly payments, or you may want to reduce your loans length from 30 years to 15 years and save yourself a bunch of interest charges. Switching from a fixed-rate loan to an ARM–which typically has lower monthly payments than a fixed-term mortgage–can be a smart financial strategy if interest rates are falling, particularly for homeowners who are not playing for staying in their homes more than a few years.

    They could opt to refinance their existing 30-year mortgage into another 30-year mortgage at a more favorable interest rate, which could reduce their monthly payments, too. For instance, even the second refinancing option may make sense if the homeowner has experienced an income cutback and needs to reduce his or her mortgage payments in order to be able to afford it. Refinancing at a lower interest rate can mean paying less in interest over the lifetime of your new mortgage. For example, if you can afford to make 1 percent of the loan in cash, you may be able to reduce the financing fee on your mortgage.

    Depending on your current loan, dropping your rate 1 %, 0.5%, or even 0.25 % may be enough to make a refinance worthwhile. It is usually worth it to refinance if you can reduce your costs somehow, whether that is getting a lower interest rate, shorter loan term, or cheaper monthly payments. Refinancing also has the potential to reduce long-term interest costs, either by getting a lower mortgage rate, shorter loan term, or a combination of the two.

    Other factors must be considered, such as closing costs, current mortgage rates, and how much equity is built up in your home. One of the most popular reasons for refinancing is getting a lower mortgage rate. Since closing costs and fees can be an expensive upfront sum, you will want to be sure the money you are saving from the lower rate is greater than what you are paying for refinancing.

    You will pay more interest on a 30-year loan compared with a shorter-term mortgage. When you extend the length of the mortgage, you can end up with a slightly higher interest rate, as lenders factor in inflation, and longer mortgage terms mean that you are likely to pay more in interest over time. Refinancing for a longer term of the loan may help lower payments if a homeowner is struggling to keep up with their mortgage payments.

    Even if interest rates did not change much, a homeowner may have improved his or her credit score over that period, potentially unlocking lower rates that they could benefit from with a mortgage refinance. Many times, homeowners may get a lower interest rate through a refinance, as interest rates might have fallen since the original purchase of the home, or the homeowner might qualify for better rates and wish to take advantage.

    WhileARMs typically begin with lower rates than fixed-rate mortgages, periodic adjustments may cause rates to rise higher than those available with a fixed-rate mortgage. If rates keep falling, a periodic ARM rate adjustment results in lower rates and smaller monthly mortgage payments, eliminating the need to refinance whenever rates fall.

    If your finances improve and you can afford higher monthly payments, you may be able to refinance a 30-year loan to a 15-year fixed-rate mortgage, allowing you to pay the loan off more quickly while paying less interest. Refinancing to, say, a 15-year loan would mean higher monthly payments, but you would pay the loan off faster.

    Refinancing your mortgage can save you a significant amount of money, reduce the amount of time it takes you to pay down the loan, or improve your cash flow. Refinancing could let you modify your mortgage terms to get lower monthly payments, change the length of the loan, consolidate debt, or even extract a little cash out of the equity in your home to pay for bills or repairs. Refinancing can also help you tap into equity in your home or rid yourself of your FHA loan and its monthly mortgage insurance premium. Getting a new mortgage with refinancing also helps homeowners to gain equity in their homes faster, because less money goes to interest, or the length of the loan is shorter.

    If you cannot get a rate reduction – or shorten your mortgage term – then you may want to consider getting a home equity loan or home equity line of credit rather than cash-out refinancing. While the rates for a cash-out refi can be slightly higher than the rates for a refinance with both rates and terms, it still might not be the least expensive way to borrow. If you know that your current payment plan is unrealistic with your familys income, refinancing could free up extra cash for investing, building emergency funds, or spending it on other necessities.

    Timing is essential when asking whether you should aShould I refinance my mortgage?a Refinancing comes with a new set of closing costs, and sometimes, the right move is to keep making payments on your existing loan. You may also want to consider paying down your mortgage points for a lower interest rate, as long as youare living in your forever home.

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