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Reasons to Refinance Your Mortgage

By Derren Peters

If interest rates have dropped since you signed for your mortgage, you're paying an unnecessarily high amount on your monthly mortgage payments. Refinancing your mortgage can solve that, but that doesn't mean it's a smart move for every Texas homeowner. Consider these points before deciding whether to plunge into a new mortgage plan.

If You're Refinancing From Adjustable to Fixed Rate

Consider how the mortgage rates are trending. Are they going up, or dropping? With an adjustable rate mortgage, it may rise to a rate that's higher than a fixed-rate mortgage. In that scenario, it's wise to consider refinancing to a fixed-rate loan. But again, consider how long you plan on staying in your home. If you're staying put longer than seven years, it's a smart move to refinance to a fixed-rate. If you plan on moving a few years down the road, it may be unwise to refinance out of your ARM.

If You're Refinancing from Fixed to Adjustable Rate

If you're signed to a 30-year fixed rate, ask yourself, "How long do I plan on staying in this home?" If the answer is anything other than "as long as possible," or "forever," it doesn't make financial sense to pay a higher, 30-year interest rate on a home you won't keep for that long. The higher monthly payments are an unnecessary money drain. Research your refinancing options for an ARM (Adjustable Rate Mortgage), as the lower rate will produce a lower monthly mortgage payment.

Changing the Length of Your Mortgage

Texas homeowners can change the length of their mortgage. For instance, if you have a 15-year mortgage, you can extend it to 30 years. The principal balance of your mortgage is spread out over a longer period of time, lowering your monthly payments. On the negative side, the interest is higher on longer-term mortgages, meaning you pay back more in the long term. On the flipside, those with 30-year mortgages who want to pad their long-term savings should consider shortening their term to 15-years. Your monthly payment is higher, but wind up paying much less in interest during the life of the loan, saving you thousands of dollars in the long run.

If You're Refinancing to an Interest Only Loan

With an interest-only loan, the minimum amount you have to pay is the amount of interest for a certain period of time. You can off pay as much of the principal as you like. This provides the flexibility to pay less if circumstances force you to divert money elsewhere.

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