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Should I
Refinance
Now?

by Michael Licamele


July 2009 Update: Rates have started to come down again after spiking up at the end of May. Borrowers have yet another chance to lock in low fixed rates below 5%, but no one is sure how long before rates start to head up and stay up. For expert help with your refinance needs, whether for a foreclosure or not, MortgageAlmanac has experts in your area ready to assist you now. Just fill out our short refinance form to get a free pre-approval today.

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With interest rates still low, you probably have wondered whether or not you should refinance your existing home mortgage. This page can help you determine how much you will save by refinancing and offers some money-saving strategies.

The old rule of thumb for refinancing was that, in order for refinancing to be worth while, the new interest rate must be at least 2% lower than the old interest rate. The old rules of refinancing are now gone. Today, as little as a 1/2% interest rate decrease through refinancing can save you thousands of dollars if executed properly and in accordance with your specific financing needs. A variety of loan terms, no-point rate options and lower closing cost loans have greatly decreased the rate difference needed to make refinancing profitable to you.

Why Should You Consider Refinancing?

In addition to just lowering your interest rate, there are eight major reasons why you should take advantage of refinancing:

1) Maximize short term cash flow with lower payments or a longer term.

2) Decrease monthly payments for as long as you plan to be in your home.

3) Switch to a fixed rate program to eliminate payment changes of ARMs.

4) Build up equity by paying down principal more quickly.

5) Match your loan term to the years until your retirement.

6) Switch out of an adjustable loan with old high lifetime payment caps.

7) Withdraw funds from the equity in your home for tax deductions.

8) Consolidate other debts to take advantage of tax deductions.

Would Refinancing Be Worthwhile?

Refinancing can almost always be worthwhile, but it does not make good financial sense for everyone. There are four main factors to analyze when determining the costs and benefits of refinancing:

1) What will be the difference between the old rate and the new rate?

2) What are the total costs associated with the refinance transaction?

3) How closely is the loan term matched with the expected holding period of the loan?

4) How comfortable are you with possible payment changes over the life of your mortgage loan?

The savings you can obtain from refinancing depend directly on the answers to the above four questions. There are numerous potential combinations of the above four areas, and there are numerous mortgage programs to meet each need.

What are the Costs of Refinancing?

The costs of refinancing have decreased greatly in the past several years. With no-point loan options, for example, borrowers can save thousands of dollars up front. No-closing-cost options are also available such as at web sites like ZeroZeroRefinance.com. Closing costs can also be included in the new mortgage loan amount so that no cash is required to execute a refinance.

Mortgage Almanac offers a free refinance analysis to determine if refinancing makes sense. Just complete our refinance help request form and one (yes, just one) loan officer will contact you to review your specific financial situation at no charge.


Michael Licamele is the Editor of MortgageAlmanac.com and President of Residential Finance Network at rfnc.com.


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