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- The Best Way to Refinance a Mortgage
A home mortgage is the largest monthly expense paid by many families. Reducing a mortgage through refinancing can loosen up finances and save thousands of dollars in the form of interest over time. Before you decide to refinance, understand how and why you should refinance to save the most money.
The timing of your mortgage refinancing has a huge impact on how effective the new loan will be in saving you money. The main purpose of mortgage refinancing is to lock in at a lower interest rate, which will lower your monthly payments. Typically, this means the best time to see refinancing is after a sharp decline in interest rates, to a level substantially lower than your current interest rate. If you can get a rate a percentage point or two below your current rate, there's a good chance you will save money.
Another reason to refinance is to change the terms of your mortgage. If your current mortgage has a variable interest rate, and you suspect interest rates will increase in the future, it may be worth refinancing to lock in at a low fixed rate.
The easiest place to go for mortgage financing is often the lender of your current mortgage. If you have been a good borrower, meaning you have made mortgage payments on time consistently, your borrower will likely want to keep you as a customer and will be willing to offer you a good rate if you seek refinancing. Another benefit of using your current lender is that it may waive fees as a sign of good faith or because they already have certain information about your home. Even if your lender is willing to offer refinancing, however, it doesn't hurt to shop around. Inquire at other reputable lenders in your area to comparison shop for the best rate. Stick with large lenders that you are familiar with, like national banks.
Just because you can get a new mortgage with a lower interest rate, it doesn't necessarily mean you will save money. Refinancing involves costs for home inspections, fees and other closing costs, which can easily add up to thousands of dollars if they are based on the value of your home. Make sure you know all of the costs associated with your refinancing package and then compare those costs the savings you will gain from your new interest rate. If the difference is negligible, you might be better served waiting to see if interest rates fall further before refinancing. Try to avoid refinancing too often, since repeatedly paying for extra costs will sap some of your savings.
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