Refinancing Is It The Right Time

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Refinancing: Is It the Right Time?


Summary: When Should I Refinance?


During the life of your mortgage, you may consider refinancing to achieve goals like reducing your interest rate, lowering your monthly payment, consolidating multiple loans, or obtaining cash for projects or education. The key question is whether refinancing is the right decision and when it will pay off.

Considerations for Refinancing


Refinancing a mortgage comes with costs. Getting a new loan means you'll encounter additional closing costs, including a new appraisal and credit report. To determine if refinancing is beneficial, consider how long you plan to stay in your home.

Steps to Determine If You Should Refinance


1. Calculate Potential Savings: Estimate your new monthly payment if you refinance. Subtract this from your current payment to find your monthly savings.

2. Recouping Costs: Divide the closing costs by your monthly savings to determine how long it will take to break even.

For instance, switching from a 6.25% interest rate with a $1,477 payment to a 5.5% rate with a $1,277 payment saves $200 monthly. With $3,800 in closing costs, it takes 19 months to break even.

Timing and Penalties


If you plan to sell your home before recouping costs, refinancing isn't advisable. However, if you'll stay long enough to offset the expenses, refinancing could be beneficial?"typically, a two-year timeline works well.

Also, check if your mortgage has a prepayment penalty. Some lenders might waive this if you refinance with them, so it's crucial to know the specifics.

In conclusion, evaluate your long-term plans and potential savings to make an informed decision about refinancing.

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