Interest rates that havent been seen in decades have sparked a furious rush by homeowners across the country to refinance the terms of their mortgage.
And while that may be the right move for many, the important question remains: Is it right for you?
Refinancing can save a homeowner a lot of money. There are several reasons you might want to refinance. Some choose to refinance to lower their mortgage interest rate. A lower rate means lower payments. Others choose to refinance to shorten their loan term. For example, some homeowners may choose to go from a 30-year note to a 15-year note. Others seek a fixed-rate mortgage to replace an adjustable-rate mortgage. A third reason people refinance is to put their financial house in order. Or they may want to improve the home or help pay for other costs.
Another thing to consider is how much the refinancing cost will be. The majority of the costs are going to be similar to those incurred while getting the first mortgage, including application fees, appraisal fees and survey costs. A borrower can save some refinancing costs sometimes by using the lender who holds the current mortgage.
Also consider the effect the lower interest rate will have on your allowable tax deductions. Because each persons tax situation is different, consult a tax professional. Think about whether you want to "lock in" the rate over the duration of the loan.
A commonly asked question is how does one know when to refinance? The general rule of thumb is if mortgage rates are 2 percent lower than the rate you currently have on your loan, then its time to consider refinancing.
However, refinancing might be an option even if theres not a 2 percent difference. Even small interest rate fluctuations can result in savings on the monthly payment. Contact your lender for information on possible scenarios.
If you plan to stay in your home for less than a couple of years, it might not help to refinance. Thats because many lenders charge a fee to refinance your loan, and you may not spend enough time in the home to recoup the fee. Again, its wise to talk to your real estate agent or a lender to discuss the possibilities.
Sources for these stories include: Coldwellbanker.com, Moving.com, Federal Citizen Information Center Home Page, Realtor.com, Homestore.com, homebuilder.com, forsalebyowner.com, San Diego Association of Realtors, Monstermoving.com, Interest.com, Century21.com and Amsouth.com.
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