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How to know when to refinance

Is now the right time to refinance? If you’re a homeowner, it’s a question you’re bound to ask yourself at some point during the life of your mortgage.

The short answer is … It depends on your specific situation and goals.

There are a few reasons to refinance your mortgage– maybe interest rates have dropped since you took our your initial loan and you want to take advantage of the lower rate, or you want to shorten your loan’s term.

For instance, if you have an adjustable-rate mortgage you might want to switch to a fixed-rate loan in order to lock in the lower interest rate.

The good news is that mortgage rates are still near historic lows.

The national average for a 30 year fixed mortgage is currently about 4%, according to Bankrate.com.

But before you decide to take the plunge, you’ll want to ask yourself a few questions. First, do you own at least 20% of your home? Many banks won’t even consider refinancing until you do.

Ask yourself how long you have left on your loan and how long you plan to stay in your home.

If you have 5 years or more left on your mortgage and plan to live in your home for at least another three years, it may pay to spend the money and refinance now.  

Wait — it costs MONEY to refinance, you ask? Unfortunately, yes. The thinking here is that you pay a little up front now, to enjoy bigger savings in the years ahead. So you’ll want to understand what your out-of-pocket costs are up front.

Typically, refinancing a home loan can cost 2 to 5 percent of your total mortgage principal.

So, if your principal is $200,000, it will cost you between $4,000 and  $10,000 to refinance.

With the help of a refinancing calculator , find out what your “break-even” point is – that’s the time it will take for you to recoup the money you spent on the refinance.

If after crunching the numbers you decide refinancing is for you, then it’s time to start shopping for a mortgage.

Remember, when you refinance you’re applying for a NEW loan so be prepared to verify your assets, credit profile and job history.

A prior bankruptcy or foreclosure could affect the rate and terms of the loan you can qualify for.

Finally, you’ll need to get your home appraised to make sure it’s still worth enough to support the loan.

The process may sound complicated, but if you do your homework and ask yourself the right questions, refinancing your home can make good money sense.


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