Arm Yourself With Information Before Refinancing Your Mortgage
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by: marciafreeman
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It makes good financial sense to refinance your mortgage when interest rates drop below the rate of your current loan. You must, however, completely familiarize yourself with the terms of your new loan before signing on the dotted line so that you know precisely what you are committing yourself to. Knowledge is your best protection from mistakes you will regret later. The foreclosure crisis of the late 2000s dramatically illustrates the consequences of leaping before looking.
Homeowners refinance their mortgages for a number of reasons. The most obvious of these is to obtain a more favorable interest rate, particularly when the current mortgage has an adjustable interest rate that is about to reset. Other homeowners refinance a mortgage to access their home equity in order to finance home improvements or pay down debt. The homeowner benefits from this financial strategy at income tax time as mortgage interest is deductible, whereas interest on consumer loans (like credit card debt and home improvement loans) is not.
Some homeowners refinance a mortgage in order to shorten the repayment period. Monthly payments will rise, but the overall interest paid over the life of the loan will be less and the loan will be paid off sooner. Regardless of the motivation behind your decision to refinance your mortgage, you should do some preliminary investigation into available mortgage products so that you understand exactly what you will be responsible for.
Another point to consider when deciding whether to refinance your mortgage is how long you intend to remain in your current home. It typically takes about two years before you completely recoup your closing costs from the savings. Refinancing your mortgage only to turn around and sell the home shortly thereafter does not make good financial sense.
Even though refinance of a mortgage does not involve a sale of the home involved, the loan process itself remains the same. You are still responsible for loan closing costs, which include application fees, title update and review charges, title insurance premiums, document processing fees, discount points, appraisal fees, attorney fees and county clerk filing and recording fees These costs can either be paid upfront or added to the mortgage.
So long as you completely understand the terms of your loan and you intend to stay in your home long enough to recoup your closing costs, refinancing your mortgage can be one of the best financial moves you will every make.
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