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Refinancing...The right choice?
For most people today, refinancing
often makes good sense. Why? For many people, today's mortgage rates
are much lower than the rates they're currently paying. If this is your situation,
you may be able to save a substantial amount of money by refinancing your home loan.
There are other good reasons to refinance. If you have a home equity loan or
line of credit, there's a good chance you're paying a higher percentage (maybe 9%
to 10% or more). If you have large credit card debts, you could possibly be
paying up to 23%. And, you're not able to deduct the credit card interest from
your income taxes!
If this sounds like your situation, refinancing your home may be a perfect solution
to help reduce your monthly payments. You could literally save hundreds of
dollars every month by consolidating your bills into one easy monthly payment.
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Should
I refinance my existing loan now?
Many factors come into play
when making the decision to refinance your existing mortgage. You need to ask
some important questions:
How much lower should my interest rate be for refinancing to make sense?
Can I qualify for a lower rate?
How long will it take to recoup the costs of the loan?
What type of loan program is right for me?
The following questions and answers were designed to help you make an informed decision,
and more importantly, to help you know just which questions to ask your loan officer.
In the past, the decision to refinance was usually based on balancing the cost of
refinancing with the possible savings in the form of a lower monthly payment.
Now, lenders offer "no cost" or "low cost" loan packages that
sound good on the surface, but you end up paying a higher interest rate. These
programs were designed to eliminate or lower the out-of-pocket expenses previously
associated with refinancing your home loan.
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Will a "no
cost" or "low cost" loan work for me?
That depends on how long you
plan to stay in your home. If you decide to move in a few years, the monthly
savings you might obtain by refinancing may never add up to the costs you may have
to pay to refinance your home. On the other hand, a "no cost" or
"low cost" loan might save you money in the long run.
Compare different loan programs to determine which will benefit you most. If you
don't think you will stay for many years in the home you live in now, but you would
like to consolidate your bills or lower your interest rate, you might take a look
at the advantages of an
Adjustable Rate Mortgage (ARM).
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How will I
know how long it will take to recoup the cost of my loan?
Your loan officer will have
the current interest rates available for the loan program you've chosen. These
rates, and the term (how many months) of your loan will determine your new monthly
payments. Subtract the new monthly payment from your old monthly payment.
For example, $980.00 (your old payment) minus $720.00 (your new payment) = $260.00
per month savings. Now, let's say it costs you $2,500.00 for all of your loan
costs and fees. Divide $2,500.00 by $260.00 to find out how many months it
will take you to recoup the costs of your loan. In this case, you will have
your new loan for a little over 9 1/2 months before you will break even.
The good news is that from then on, you will save $3,120.00 every year. And
if you have a 30 year loan and stay in your home for all of the 30 years, you will
have saved $93,600.00 on the price of your home.
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