When Does It Make Sense To Refinance?
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There are certain instances where it would be an advantage for you to refinance your home. Even in the midst of a down economy, homeowners are finding lower interest rates and opportunities to incorporate balances on high-interest unsecured debt to a lower interest rate home loan. Some homeowners are finding the benefit of a higher credit rating after incorporating debt into their refinanced home loan, reducing their debt-to-income-ratio. There are other reasons to refinance, however.
Your primary consideration in refinancing your home will be to save money. How can this be achieved? Several ways for savings might be to lower your interest rate, lower your monthly payment, shorten the term of your loan, eliminate your private mortgage insurance (PMI), obtain financing for repairs that would significantly improve the value of your home, or for college or medical expenses.
If you find that you will save money on a refinance for your home loan, then you should consider your options. Keep in mind that your first and foremost goal will be to find a lower interest rate. In order to find a lower interest rate, you may have to do some homework.
First, contact your current lender and see what kind of interest rate he offers you; although, you don’t have to settle for his offer. Make sure you ask for all fees and charges, down payment required, loan origination fees, closing costs and any other associated fees. Also, ask for the annual percentage rate (APR). That will give you the bottom line on what your final interest rate will be. Get everything in writing before signing anything.
Find out how long the interest rate offered is valid. Based on stock market fluctuations, interest rates could and probably will change from one day to the next. If you have PMI on your mortgage, then another question you need to ask your lender is if you have paid down your mortgage by 20 percent. If so, your lender is obligated by federal law to remove PMI from your home loan.
In order to see if the rate offered by your current lender is the best available to you, research the Internet. You might find a better rate online. Make sure the lender is reputable, though. The Federal Trade Commission (FTC) is constantly investigating mortgage companies for fraud, so don’t fall prey to any of these. Visit the FTC website for more information. Look for a Better Business Bureau (BBB) symbol and other reputable associations.
Make sure during your research that you determine what type of loan you will want – a conventional or government-backed loan, a traditional or adjustable rate mortgage. In communicating with lenders, make note of the details of each offer, obtaining the same information in writing from each institution.
Combine all offers onto one spreadsheet, so that you can compare the benefits of each. Note your savings of each in a final column. This will help you conclude your research.
Once you’ve done all your research and you’re confident you will receive the desired outcome in your goal to save money, sign on the dotted line.
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