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Smart Reasons To Refinance Your Home

By Elizabeth R. Elstien

If you're thinking about refinancing your home, you probably know there are many compelling and valid reasons to do so. Many factors determine if refinancing a mortgage loan saves dollars and makes sense. Closing costs in Florida average around 2% of the amount refinanced and should also be figured in to the price of refinancing. Get informed on some smart reasons to refinance in today's tough lending market.

Get rid of balloon payment.

If your current loan has a balloon payment coming due and you won't have the money to pay it off, refinancing may be the only way to keep your home. Make sure your credit is good and start the process long before the balloon payment is due. Refinance the balloon payment amount with a fixed-rate mortgage to maintain the same payment (not including changes in property tax or insurance amounts) and avoid another balloon payment.

Better credit than when you bought property.

If your credit is a lot better than when you purchased the property, you may save money by refinancing. A lower interest rate with better terms will significantly decrease your payments and long-term interest owed.

Lower mortgage loan interest rate.

To make it worth your while, obtain an interest rate decrease of at least 1%. Be certain your credit is at least as good as when you first acquired the home. As adjustable-interest rates are low right now, changing to a fixed rate may actually cost you more. Measure the difference. Refinance to a fixed-interest rate when the adjustable-rate interest increases.

Shorten length of loan.

Have a 30-year loan and want to shorten the loan time? Refinancing is the way to do it. To keep your refinance payments reasonable, opt for a considerably lower interest rate if possible and stay with a fixed-rate interest. Most lenders only let you shorten the loan time to 10 years on a fixed-rate loan. Generally, it doesn't pay to refinance if your loan time is much less than 10 years. However, if the savings are exceptionally good, go with a 10-year loan refinance and make extra payments to reduce the loan time.

While these are all great reasons to refinance a mortgage loan, compare monthly and overall savings for retaining your loan versus refinancing. Look at long-term savings. Planning a move in a few years? It's most likely not beneficial to refinance for the short term. Do your comparisons and see if the benefits outweigh the refinancing costs.

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