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Reasons To Refinance Your Mortgage

Thinking about doing a mortgage refinance? There are a lot of reasons to take advantage of refinancing. DO you have a good one? Le’t take a look at the top reasons that people decide to refinance. See what refinancing can do for you and then how to get started.

Why Refi?

There are a lot of reasons people refinance a loan. It can solve a lot of problems or create some nice financial opportunities. Here are the top problems that can be solved.

  1. You need to lower your payment.
    Things happen in life and you might not be able to afford as much today as you could 5 years ago. A mortgage refinance can lower your monthly payment to something much more affordable. Even if your interest rate remains the same, refinancing could stretch your payments out over a new 30 year period. Just know that the total amount that you pay in interest will go up since you will be increasing the total time that you are paying on the loan.
  2. You want to lower your interest rate.
    If your credit has improved or if rates have gone down, a refinance will allow you to take advantages. Refinancing could potentially save you thousands of dollars in interest depending on where your interest rate is currently.There are costs associated with a refi but if you can save at least .75%, it may be worthwhile.
  3. You need to escape mortgage insurance.
    If you have an FHA loan and are paying mortgage insurance, it will not always stop when you have enough equity. You will need to refinance your mortgage to get out from under this costly payment. Refinancing can save you hundreds of dollars each and every month.
    If you received your FHA loan before July 2013, you can ask for your mortgage insurance to stop if your Loan o Value is 78% or less. If you received an FHA loan after July 2013, your mortgage insurance can be removed after 11 years, if you put at least 10% down. If you have an FHA after July 2013 and put less than 10% down, your mortgage insurance will never end and will be carried for the life of the loan, unless you refi.
  4. You need to fix an escrow shortage.
    Have a major escrow shortage that you can not afford to fix? Refinancing can get you back on track. Make sure that you are not losing a good interest rate
  5. You need to pull money out for an emergency.
    If a major event happens and you need money to pay for it, you can tap into the equity in your home. This could be an illness or even a death in the family. Whatever the case, emergency personal loans are expensive.  The money tied up in your home could be the low cost answer.
  6. You want to pay off high interest debt.
    The average credit card has an interest rate of about 17% and can take years to pay off if all that you can afford to pay is the minimum payment. Pull out equity in your home and pay off this debt. You will effectively slash the interest you will be paying and lower your overall monthly payment.
  7. You want to move from an ARM to a Fixed.
    If you have an Adjustable Rate Mortgage and are approaching the end of your first term, you might want to refi your loan to a fixed rate mortgage. Fixed rate mortgages are easier to budget for and you could potentially lock in a nice low rate for the long term.
  8. You want to pay off your loan early.
    You might find that moving to a 15 year loan from a 30 year loan is not that much more expensive. The lower interest rate of the loan can offset the higher principal payment and you can be free and clear of your mortgage in no time.

Now What?

So you have decided to refinance your loan. Maybe one of the reasons above made sense to you or maybe you have another good reason. Whatever the case, you have got a bit of work to do to get ready.

  • Check Your Credit
    Before undertaking any major financial transaction where your credit will be judged, you need to check it yourself. This will give you the opportunity to correct any errors or improve upon your store before it is too late. Pull a report from all three bureaus and check for errors. If you find any, it will take at least two months to get the error investigated and removed. If your score needs a little work, now is the time to improve your credit.
  • Prepare For An Appraisal
    Appraisers will look pat most cosmetic things but it never hurt to get your home in shape. A little touch up paint, perhaps a little landscaping and a good cleaning can help. These things are supposed to be looked past but every bit helps. In addition, now is the time to wrap up any projects that you have been working on. If you have been slowly doing a bathroom remodel, finish it up.
  • Do The Math
    Refinancing your home will come with closing costs. Do the math and figure out what the refinance will cost and what it will save you in monthly payments. Now, figure out how long you expect to be in your home and see if you will be in it long enough to make the refinance cost effective. If it takes two years to break even and you plan on selling your home around that point, it would be a wash to refi and probably not worth the effort.
  • Shop Lenders
    If you decide that it is worthwhile to proceed, shop a few different lenders. Rates and closing costs will vary and you need to shop to get the best deal. A refinance is not something to rush into, so take the tme to do the research and reap the benefits.
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James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.

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