Refinance Mortgage Loans

Written by Beth Hrusch
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A refinance is basically the trading of one home loan for another. Traditionally, it is a smart thing to do when rates drop at least two percentage points from your current loan interest rate, and you are planning on staying in your home for at least three more years. If these conditions apply, then you may want to consider shopping around for a better mortgage rate, as the long-term savings can add up to several thousand dollars.

Refinancing--Is it the Answer?

Of course, refinancing may not save enough money to make it worth the trouble and expense of taking out a new loan. Some lenders will charge fees and points on refinance loans, together which could add up to thousands of dollars over the length of the loan. A significantly lower interest rate is often accompanied by higher fees, which is the bank's way of recouping some of the lost interest income.

To avoid high fees and points, borrowers may have to accept the slightly higher interest rate offered with low- or no-cost refinance loans. These loans are becoming popular alternatives for those who are not sure that refinancing will really save them money. Not all lenders offer them, but they are worth exploring if the high costs of taking out a new loan are holding you back from refinancing your home.

Depending on how long you have been paying back your existing loan, even the addition of points may not mean that you will be making higher monthly payments if you refinance. The pay down may make up for the additional costs incurred with the new loan. Refinance loans allow home owners to take advantage of a favorable situation, and in the process save them money over the term of their mortgage.

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