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How to Decide If You Should Refinance

Aug 5, 2008
Making the decision to refinance is a difficult one; you've worked hard to whittle down the years you have left of paying for your home. Sometimes, however, it's a necessary move to make, and there are even situations where financial benefits can be reaped from timely mortgage refinance. Every homeowner must make the decision independently, but it's definitely something to think seriously about.

First, consider the benefits. Refinancing will immediately free up some extra money, giving you some breathing room. The money you've put into your home over the years represents real equity; this is an investment just like any other. Think about your stock portfolio-sometimes you have to sell, if only to generate some extra cash. If you have a thirty-year mortgage you've been paying for the past decade, you can use those ten years of monthly payments. By refinancing, you'll immediately have a lower payment each month, which means more dollars in your pocket for essentials like food, utility bills, and education. In fact, many people refinance simply to send their children to college.

Interest rates have also dropped significantly recently. If you bought your home during the real estate boom of the 1990's, it's likely you're locked into a relatively high interest rate. You've probably read or seen news on the television of the Federal Reserve Bank's recent cuts of the Prime Interest Rate. This directly affects the interest rate that banks can offer for refinancing, meaning that banks are now offering some of the lowest rates ever. That means that you can actually potentially save money over the long-term by refinancing at a lower rate.

There are two different kinds of refinancing. The first is called "rate-and-term" refinancing. Essentially, this is a simple re-arrangement of your current mortgage, paying off the first loan with the money from the refinance. This way, you can take advantage of lower rates. With interest rates at their lowest point in recent memory, this is a great chance for many people to take advantage of the slowing economy.

The other kind is called "cash-out" refinancing. This will leave you with some additional money on top of that owed exclusively for the property itself. You're free to do with this cash what you please. Basically, with this option, you're taking money out of the equity of the home for ready cash. This can then be used for important costs you otherwise could not meet.

When you make the decision for yourself, it's important to consider a myriad of factors. For instance, how long do you plan on working? If you refinance, it's likely that you'll be paying off your mortgage for a longer period of time. Take into account closing costs: is it still a financially sound move? For many, especially with the current state of the economy, the answer may be yes.

It's at least worth taking the time to consult with a mortgage professional to see if you refinancing can work for you. Set up a consultation today to determine whether refinancing is your best option.
About the Author
With the current financial climate you may be thinking about refinancing. Home refinancing isn't something you should consider without doing research. There are certainly scam artists in the industry. Get research here: http://www.refinancingright.com
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