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Four Things You Need To Know Before You Refinance Your Home Loan
Refinance to Lower Your Monthly Mortgage Payment A percentage
drop of just one half to three quarters of a percentage point can lower
your mortgage payment. If you don't refinance, you may be paying to much
every month for your loan, and that's never a good financial move.
There are three ways refinancing can lower your payment. The first is simply
to refinance at a lower interest rate. You can also change the term on your mortgage
to lower your payment. Switching from a 15- to a 30-year term can significantly
lower your mortgage payment. But, if long-term savings is more appealing to you,
refinancing from a 30-year to a 15-year mortgage can save you thousands of dollars
over the life of your loan. The third way to lower your payment is by switching
from a traditional mortgage with principal and interest payments to a mortgage
program that allows interest only payments.
Refinance to Access Cash Think of the equity in your home
as a savings account that you could access through cash-out refinance.
You may want to finance an important home improvement that will increase
the value of your home, pay for college or pay off high interest credit
card debt. Whatever your reason, this may be the right option for you.
Refinance to Pay Off Credit Cards And Other Debt
The difference between credit card debt and a mortgage can, financially speaking,
mean thousands of dollars. Why? Credit card debt is compounded where the interest
on a mortgage is simple, and often tax deductible. Using the equity in your
home rather than credit cards to finance expensive purchases can save you money
paid in interest in the long run. Be sure to consult your tax advisor.
Refinance to Convert An Adjustable Rate Mortgage (ARM) to a Fixed-Rate
Mortgage
Use the length of time you plan on being in your home to your best financial
advantage. If you only plan on staying in your home for a few years, paying
a higher interest rate for a 30-year fixed-rate mortgage may be costing you
money. Consider refinancing to an Adjustable Rate Mortgage (ARM) instead,
and pay a much lower amount each month. Likewise, if you have an adjustable
rate mortgage and will be in your home longer than the initial 3- or 5-year
fixed period, it might be a smart move to convert to a fixed-rate loan
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