Refinancing Your Home
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Refinancing your home can be a financially rewarding experience.
Here are some of the questions that you should ask a qualified lender before you refinance your home:
- What kind of loan you should get?
- How many years should your loan take?
- What are the refinancing costs going to be?
- How many years do you need to continue to own your home in order to come out ahead if you refinance?
- Since mortgage rates tend to fluctuate--sometimes becoming higher and sometimes lower--should you lock the rate you are quoted or should you let it float?
- By refinancing will you lower your mortgage interest rate? A lower interest rate means lower monthly payments.
- Should you get a fixed rate when you refinance? Fixed rate mortgages are viewed by most as the lowest risk mortgage through a lender. If a homeowner locks their mortgage into a low rate, they can be assured that they will maintain that rate even if the market fluctuates upward and rates begin to soar.
- Should you refinance in order to shorten your loan term. For example, some homeowners go from a 30-year fixed-rate loan to a 15-year fixed-rate mortgage. Other homeowners seek a fixed-rate mortgage to replace their current adjustable-rate mortgage (ARM). They may do this to get what they consider a better rate or to seek a rate that is consistent over the term of the mortgage instead of changing during the term.
- Should you refinance your mortgage to consolidate debts. You may have a car loan, other installment loans, and credit card loans--some of which may be at very high interest rates.
- Some homeowners refinance and use the money for home improvements or to help pay education costs or because of divorce. They may want to remove the other person's name from the mortgage papers. Still others may want to change a mortgage because the mortgage holder is under a government home ownership program and they wish to get out of the program due to certain rules and regulations.
- How much will the refinancing costs be? Most of the costs are very much like the costs the person faced when getting his or her first mortgage. These costs include an application fee, appraisal fee, and survey costs. They also include homeowner's hazard insurance, lender's attorney review fees, and title search and title insurance fees. Also involved may be home inspection fees, loan origination fees, mortgage insurance, and points. Points are a percentage fee that is charged for the loan in addition to the mortgage rate. Lenders often charge one or more points to make up for a lower interest rate. The points are paid at the time of the closing.
- Can you save some refinancing costs by using the lender who holds the current mortgage? This is generally true if that lender will waive particular costs, such as the survey because it is still current.
- How many years, if any, will refinancing add to your mortgage payments ? You most likely would not want to add another 10 or 15 years to your mortgage payments. However, if the current rate is low enough, you may want to take advantage of it.
- When refinancing, what is the effect that the lower interest rate will have on your allowable tax deductions? Many people rely heavily on their home mortgage interest charges for the year as a way to increase their itemized deductions. Due to the fact that everyone's tax situation differs you may want to check with your tax preparer for additional information.
- Another important consideration in refinancing is whether or not to lock the mortgage rate you are quoted. You will also have to consider for how long to lock the rate. Although mortgage rates remain relatively steady sometimes, the period can be either long or short.
- Depending on your personal situation and current mortgage rates, the answer for you as to whether or not you should finance, could be either "yes" or "no." In any case, you will feel much better about your final decision after you have found out the answer to these questions so that you can see clearly if refinancing your home is a good financial decision for you to make.
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