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Is It Time to Refinance Your Mortgage?

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Refinance Your Mortgage

You've probably seen the commercials all over the place, telling you how much money you can save by refinancing your mortgage and taking advantage of near-record low rates.
So, is it time for you to take the plunge into the refinancing pool?
Instead of relying solely on well-written sales copy in commercials, you need to make sure that refinancing is the right move FOR YOU right now.
How do you do that?
By getting the answers to these 6 questions:

1.How long will it take for you to break even?
In the mortgage world, the "break-even period" is the time it takes for the money you save in interest to cover all of the costs of your refinance.  Remember, every loan requires closing costs, and refinanced loans are no exception!
So, how do you figure out what your break-even period will be?
If you're switching to a similar loan (for example, from one 30-year mortgage to another), all you have to do is figure out how much money you'll save in interest every month -- then divide the amount of your closing costs by that difference.  For example, if you're going to save $120 every month and your closing costs are $3,200, it will take you 26.6 months to break even.
If you're switching to a different loan (for example, from a 30-year mortgage to a 15-year), the math gets a little trickier.  In those cases, the best way to figure out your break-even period is to use a refinance calculator that takes everything into account.

2.Are your monthly payments too high?
If your mortgage has become a burden -- and you're seriously starting to wonder how long you can keep paying it every month -- refinancing may be your only option to avoid foreclosure.  After all, mortgage rates have been sitting at or near record lows all year long.  If you've been paying a fixed rate that's been around for 7 or 8 years (back when mortgage rates were much higher), you're paying too much.  

3.Will you actually qualify for a new loan?
Remember, refinancing means starting the loan process over from scratch.  If you're on the bubble credit-wise, you may not be able to qualify for any kind of refinanced loan.
If it's been several years since you last applied for a loan, take a look at your credit score.  Requirements have gotten much stricter since the housing bubble burst.  Many scores that were deemed OK in 2006 and 2007 aren't acceptable anymore.
Unfortunately, if you can't qualify, you can't take advantage of all that refinancing has to offer.

4.What's the deal with closing costs?
In an effort to bring quality customers through the doors, some lenders are offering "no fee" options on their refinancing loans -- meaning they'll foot the bill to close everything.
Just remember that you'll wind up paying a higher rate in order to compensate for your lender's "generosity".  In some cases, your rate might wind up being double what the average mortgage rate is!  So, you'll have to decide if saving all of that upfront expense is worth paying higher rates in the long run -- or if you want to bite the bullet now, pay your closing costs yourself, and save yourself more money in the long run.

5.How long are you planning to stay in your home?
If you're going to move out in the next year or so, spending a few thousand dollars in closing costs probably isn't worth it.  Remember, it all goes back to the break-even period!

6.Are you ready to shop around?
The mortgage industry has changed dramatically over the past couple of years.  Just because you've always done business with the same lender doesn't mean they're offering the best deal now.  If you're not willing to compare a bunch of different offers, you probably won't get the most bang for your buck!


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