Sunday, October 28, 2007

Refinancing Your Home Mortgage Loan - Is Refinancing For You?

Refinancing is the act of paying off one loan by obtaining another, using your home's equity. Refinancing is generally done to secure better loan terms, such as a lower interest rate and lower monthly payments. If you are thinking of refinancing, you should analyze your current situation to find out if refinancing is the best choice for you.

Refinancing your home can seem like the perfect solution to having more money in your pocket by way of reducing your monthly payments, and/or having money to pay off pending debts, or buy that new item or vacation that you just can’t live without. Yet, refinancing isn’t as easy or infallible as it may appear. There are many costs and potential downfalls to refinancing, so before you sign on the dotted line, you may want to look at the entire picture and use good judgment to decide if refinancing is the best decision for you.

Fees Associated with Refinancing

Remember the fees incurred in your first mortgage? Be prepared to dish them out again when refinancing your home. There are application fees, title search and title insurance fees, appraisal fees, survey costs, homeowner’s insurance, attorney’s fees, loan origination, and inspection fees, as well as mortgage insurance and points. Unless your interest rates and monthly payments are being significantly reduced, you may not be saving much in the end.

Question To Ask Yourself Before Refinancing

Will your interest rate be lower? Compare your interest rate to the current interest rate.
In the end, what are your total savings?

How long do you plan on staying in your home? If it’s three years or more, it may be a good idea.
How long will it take to break even before you recover the closing costs?
Do you have cash for closing? Is refinancing something you can afford at the moment, to gain better terms in the long run?
Is the value of your home increasing (excellent) or decreasing (could be an issue)?

If you are considering refinancing, remember that there are a variety of different mortgages to choose from. Educate yourself on your options and take all information into account. If you are getting a significantly low interest rate, then refinancing may be the best choice. Talk with your lender to find the best options available for your unique situation.


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