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Lower your monthly
payments.
Experts once said that mortgage
refinancing was only worth it if you could lower your
interest rate by 2%. Today, that isn't the case. You
need to consider more than just an interest rate. Think
about how long you will be in your home, as well as the
refinancing costs involved. Extending the life of your
mortgage is also another way to lower your payments.
Even with a small difference in rates, refinancing can
save you a substantial amount of money each month.
Switch
from a fixed rate to an adjustable rate.
This option can be ideal if you are
planning on staying in your home for another year or
two. An adjustable rate can be beneficial as the rates
rise if you have a payment cap. Normally your initial
interest is lower than with a fixed rate, and with a
rate cap you don't have to worry about the interest rate
going higher than the ARM (Adjustable Rate Mortgage)
established cap. Switching to an adjustable rate can
also make your payments smaller, providing you with
short-term savings. Moreover, your ARM could be less
expensive over the long term than a fixed-rate mortgage
if, for example, interest rates remain steady or
decrease.
Switch
from an adjustable rate to a fixed rate.
For some people, adjustable-rate
mortgages can cause worry and concern as to which
direction the market will take. A fixed-rate mortgage
will provide you with peace of mind and steady monthly
payments. It's also beneficial if the interest rate is
low. You can lock into a great rate and save even more
money. For example, if you plan to remain in your house
for the long-term, and the rates are favorable,
refinancing with a long-term, fixed-rate mortgage (at
15, 20 or 30 years) can save you significant money over
the life of your mortgage.
Build up
your equity and pay off your debt faster.
Converting to a mortgage with a
shorter term will enable you to significantly lower your
total interest costs because you are paying off the loan
sooner. Your monthly payments may not increase at all
depending on your initial rate. By reducing your term,
you will build up equity faster.
Here is an example using a loan amount of
$100,000:
Select a different adjustable rate
mortgage.
If your current adjustable loan
doesn't provide you with a cap feature, you may want to
investigate the possibility of switching to one that
does. This option allows you to set a limit on the
amount your interest rate or monthly payment can
increase. Such a loan gives you confidence in knowing
that you won't have any unpleasant surprises in a given
month.
Get control over your
future.
With so many different bills coming
in each month, it's a smart move to pay your bills on
time. Mortgage refinancing may let you consolidate all
of your bills into one low monthly payment - saving
significantly on interest charges and late fees while
giving you some peace of mind. Not only will you be more
organized, you may benefit from tax savings, too!
(Please consult your tax advisor).
Stop paying for private
mortgage insurance (PMI).
If you put less than 20% down when
you purchased your home, you're most likely paying for
private mortgage insurance each month. Once you have
accumulated more than 20% in equity, you may be able to
eliminate the insurance payments (check with your
mortgage company first). It may make sense to round up
your monthly mortgage amount (e.g., if your payment is
$1,095, round it up to $1,100) to add additional funds
to your principal. This will decrease the amount of time
it takes for you to reach 20% of your loan amount,
enabling you to eliminate your mortgage insurance
sooner.
Apply today to see
if refinancing makes sense for you.
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