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    Four Good Reasons to Refinance and Three Reasons Not to Refinance

    By Deanna Lynn Sletten     

    Refinancing your mortgage seems to be the answer to many of life’s money problems and for some people it can be. But for others it may end up costing them more money in the long run. So, when is it worth refinancing and when should you not refinance?

    Reasons to refinance

    • The number one reason to refinance is to lower your interest rate. Lowering your interest rate can mean paying a lower payment, giving you more money at the end of each month. Even in a time when interest rates are rising you may still be able to get a better rate than when you first applied for your loan. Your credit score may be better now than a few years ago and this may allow you to retain a lower interest rate.

    • Another good reason to refinance is to change your loan program. If you started out with an Adjustable Rate Mortgage (ARM) you may now want to switch to a Fixed Rate Mortgage instead. With rising interest rates your ARM may be costing you more money than you can currently afford. Switching to a fixed rate will keep your monthly payment more consistent.

    • If your monetary standing has changed over the past few years and you are able to make higher payments on your mortgage you may want to refinance in order to build your equity quicker. Changing your loan from a 30-year to a 15-year, or changing your payments from monthly to bi-monthly can pay off your loan faster and build equity in your home for the future.

    • Using the equity in your home to help pay for your child’s college, make home improvements, pay off credit cards or possibly buy that vacation home you’ve always wanted is another good reason to refinance. A cash-out refinance is a good way to use the equity you’ve built up in your home.

    Reasons not to refinance

    • You shouldn’t refinance if you are not planning on staying in the home long enough for the savings to at least cover the refinancing fees. For example, if it cost you $2500 in fees to refinance your loan but you are only saving $100 a month from the reduced payment it would take you 25 months just to break even on your savings. So if you plan on moving soon don’t bother refinancing.

    • If you have been paying on your loan for more than ten years it may not be worth it to you to refinance. Within a certain amount of time you begin paying down the principal and paying less interest. Refinancing now will, in most cases, cost you more instead of just keeping your current loan.

    • If your credit isn’t what it used to be it may keep you from obtaining a low enough interest rate to make refinancing a viable option. Having too many credit cards with high balances or too many other loans out there is enough to make you a high-risk. Refinancing at this time could cost you more instead of saving you money.

    When you are considering refinancing your mortgage, be sure to check all your options and do the math. This way you will be sure to get the option that will work for you.

    Written by Deanna Lynn SlettenRate this article:

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