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When It's the Right Call to Refinance

Aug 21, 2008
There isn't one simple, all encompassing reason to refinance a mortgage. Each homeowner faces a distinct set of circumstances, necessitating a unique course of action. Along with taking out a second mortgage, refinancing is one of the most commonly used tools to access the wealth and equity in a home. Here are some common motivations behind the decision to refinance:

Taking Advantage of Low Interest Rates: As the U.S. economy continues to slip into a recession, Interest rates are lower than they have been in decades. If you purchased your home more than 5 years ago, you may have locked yourself into a rate considerably higher than those currently offered. By refinancing your mortgage, you can benefit from the new, lower rate. While there's no way to know if interest rates will continue to drop, it might be a wise financial move to secure one today. In addition, if you have an adjustable-rate mortgage (commonly referred to as an "ARM"), you can guarantee a lower rate for the duration of the mortgage by refinancing to a fixed-rate loan.

Difficulty Making the Payment Each Month: Many homeowners take out a mortgage for too much money, and then face difficulty each month making the payment. Refinancing your mortgage can lower your payments significantly, especially if you've been building the equity in your home for a decade or more.

An Improvement in Credit Rating: If you took out a mortgage at a time of personal financial difficulty, you may not have secured the best rate possible. As we earn more money and establish a more solid credit rating, access to money becomes "cheaper". If you've made your monthly credit card, automobile, and home payments on time, it's likely that your credit will have improved. With a higher credit score, you're in a much improved position to procure a lower interest rate.

Cancelling Private Mortgage Insurance: Lending agencies typically require additional insurance when purchasing a home with less than a 20% down payment. If your home's value has increased since the time of purchase, however, you may be able to cancel this insurance. Get your home re-appraised today to see if you qualify.

Major, Unforeseen Expenses: Life throws us some pretty hard curveballs sometimes. If one hits you, consider refinancing as a quick, easy option to access the equity in your home. Many people also refinance their mortgage to free up money for their children's college education.

Paying Down Other Debt: Do some simple math: If you're paying an interest rate of 14.99% on 30,000 dollars of credit card debt, you may benefit from refinancing, if only to free up money to pay off higher interest rates. Essentially, this means that you're consolidating your debt. You could potentially save a bundle of money in the long term.

Each homeowner must make his or her own decision as to the timing of refinancing their mortgage. If you fall into one of the categories above, however, take some time to talk to a loan officer today to see if it's the right call for you.
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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