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Refinancing For The Wrong Reasons

By Bruce Kirkpatrick   Follow me: Bruce Kirkpatrick on Twitter Bruce Kirkpatrick on Facebook
Thu, Mar 06, 2008 at 12:10PM

Is it the right time to refinance your home?


When The economy is experiencing difficult times, some homeowners begin to think is it time to refinance their current home mortgage.


If you are refinancing to save interest, consider that fact that you will also be paying the banks some fees to get your mortgage refinanced. If you have an adjustable mortgage then it might be time to get into a fixed-rate program.


In a recent survey of Freddie Mac’s mortgage rates, 30-year fixed-rate mortgage averaged 5.72 percent with fees totaling 0.4 percent. 15-year fixed-rate mortgages cost an average 5.25 percent, plus 0.4 percent in fees.


Only a year ago, a 30-year mortgage cost an average of 6.3 percent. This means today rates are over one-half percent lower. In addition, 15-year mortgages a year ago cost 6.03 percent. Today’s rates for 15-year mortgages are a full percent lower than they were only a year ago.


Is it better to do a mortgage refinance now or wait to see if interest rates drop further? 


Many experts say that if you can shave 2 percentage points or more off your loan by refinancing then it is the right time. Today with zero-cost refinance options, many advisors would suggest to refinance even when saving a half point, but making sure not to extend your loan term. If you refinance with a zero-cost, you will not get the lowest interest rate mortgage because you actually pay an additional quarter percent in the interest rate instead of paying the upfront refinancing fees. Some lenders will and some will not allow you to refinance if your house was listed for sale within last six months.


Here are some other factors to consider before refinancing your mortgage.


Do not refinance for tax purposes.  Equally important, never refinance to lower your payment but lengthen your loan unless your looking at foreclosure. Your overall goal in refinance should be to lower the amount of interest you are paying throughout the entire term of the loan. This can be accomplished either by lowering the interest rate, shortening loan term, or both.

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