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Refinancing...The right choice?
For most people today, refinancing often makes good sense. Why? For many people, today's mortgage rates are much lower than the rates they're currently paying. If this is your situation, you may be able to save a substantial amount of money by refinancing your home loan.
There are other good reasons to refinance. If you have a home equity loan or line of credit, there's a good chance you're paying a higher percentage (maybe 9% to 10% or more). If you have large credit card debts, you could possibly be paying up to 23%. And, you're not able to deduct the credit card interest from your income taxes!
If this sounds like your situation, refinancing your home may be a perfect solution to help reduce your monthly payments. You could literally save hundreds of dollars every month by consolidating your bills into one easy monthly payment.
Another great reason you might want to refinance has to do with you and your family's future. Refinancing your existing loan can give you the cash you need to take advantage of the ever-growing upswing in the stock market, start your retirement portfolio or take stock of other investment programs where your money can work for you.
Many factors come into play when making the decision to refinance your existing mortgage. You need to ask some important questions: How much lower should my interest rate be for refinancing to make sense?; Can I qualify for a lower rate?, How long will it take for me to recoup the costs of the loan?; and, What type of loan program is right for me? The following questions and answers were designed to help you make an informed decision, and more importantly, to help you know just which questions to ask your loan officer.
In the past, the decision to refinance was usually based on balancing the cost of refinancing with the possible savings in the form of a lower monthly payment. Now, lenders offer "no cost" or "low cost" loan packages that sound good on the surface, but you end up paying for it in the form of a higher interest rate. These programs were designed to eliminate or lower the out-of-pocket expenses previously associated with refinancing your home loan.
That depends on how long you plan to stay in your home. If you decide to move in a few years, the monthly savings you might obtain by refinancing may never add up to the costs you may have to pay to refinance your home. On the other hand, a "no cost" or "low cost" loan might save you money in the long run.
The longer you plan to stay in your home, the more sense a "no cost" or "low cost" loan will make. Compare different loan programs to determine which will benefit you most. If you don't think you will stay for many years in the home you live in now, but you would like to consolidate your bills or lower your interest rate, you might take a look at the advantages of an Adjustable Rate Mortgage (ARM).
Your loan officer will have the current interest rates available for the loan program you've chosen. These rates, and the term (how many months) of your loan will determine your new monthly payments. Subtract the new monthly payment from your old monthly payment. For example, $980.00 (your old payment) minus $720.00 (your new payment) = $260.00 per month savings. Now, let's say it costs you $2,500.00 for all of your loan costs and fees. Divide $2,500.00 by $260.00 to find out how many months it will take you to recoup the costs of your loan. In this case, you will have your new loan for a little over 9 1/2 months before you will break even.
good news is that from then on, you will save $3,120.00 every year.
And if you have a 30 year loan and stay in your home for all of the 30
years, you will have saved $93,600.00 on the price of your home.
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