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Information on mortgages, home equity loans, and consumer credit to help you use the power of financing to your advantage.
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Mortgages > Refinance
Refinancing yet again, when does it make sense?
ADAM GELLER, AP Business Writer. Associated Press
Copyright Associated Press
Q. I refinanced my mortgage a year ago, when rates seemed too good to pass up. Now that they've dropped lower still, is it worth refinancing yet again?
A. A simple answer would be convenient, but the fact is, it depends. The wisdom of refinancing, especially for a second time, depends on you, your housing and financial circumstances, the terms of the original mortgage and a potential new one.
"You do get people who get caught up in the hype," said Keith Gumbinger, vice president of HSH Associates in Butler, N.J., a publisher of mortgage information. "There are certainly some people who it does not make sense for."
For starters, though, you're right that this is about as good a time as there has ever been to secure a home loan.
Rates on 30-year fixed rate mortgages dropped to 6.22 percent in mid-August, a record low, according to a survey by Freddie Mac, the corporation chartered by Congress to replenish the supply of funds in the loan market. That is down from 6.92 percent at the same time last year. Rates on 15-year fixed mortgages are even lower.
That leave consumers with many options, but requires some introspection.
If you refinanced a year ago, you paid closing costs. If you refinance now, you'll likely pay them again. You need to answer a few questions about yourself to determine if it's worth your while.
First, is your goal merely to reduce your monthly costs to balance a tight budget, or are you intent on saving money over the life of the loan? If you're in the first group, refinancing will almost certainly help.
If you're like most people, trying to net real long-term savings, that requires justifying the refinancing costs. Size up how long you expect to be in your home, or at the very least, how long you expect to be in the current loan. It takes most homeowners three to four years of lower monthly payments to cover the combined costs of two refinancings.
Remember, that your savings don't have to merely cover the cost of refinancing No. 2. You also need to remember that you still haven't completely covered the costs of refinancing No. 1.
You'll notice this means refinancing isn't cheap. To make it worthwhile, there are some options you may want to investigate.
If you just refinanced within the last year, some lenders will agree to a "streamlined" refinancing, freeing the homeowner from having to get yet another appraisal done of their property and saving them $300 to $350, said Holden Lewis of Bankrate.com, a personal finance website.
Some lenders, particularly credit unions, may be willing to let people who have already refinanced to modify their mortgages, lowering the rate in exchange for a fee of about $500, Lewis said.
Both he and Gumbinger say the low rate now make it increasingly possible for more homeowners to also consider changing the terms of their mortgages, say from a 30-year loan to 15 years. The monthly costs will be higher than for a new longer-term loan, but the rates will be so much lower that some homeowners will find a new 15-year loan costs about the same to carry as the old 30-year loan. And the savings on interest payments over time can be impressive.
• Apply now for a home loan!
Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
Dateline: Undated
Text Word Count 548
The tips on this website should be considered food for thought only. Lendingtips.com is a clearinghouse of ideas, not a professional adviser. Before any important decision, please consult the appropriate professionals (lawyer, accountant, real estate agency, broker etc.).
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• Mortgages > Refinance Articles Archive.
• ARM vs. Fixed Rate Mortgage. Use this calculator to compare a fixed rate mortgage to two types of ARMs, a Fully Amortizing ARM and an Interest Only ARM.
• Mortgage Loan Calculator. Use this calculator to determine your monthly payment and amortization schedule.
• Refinance Breakeven. Should you refinance your mortgage? Use this calculator to determine when you will breakeven!
• Amortizing Loan Calculator. Enter your desired payment - and let us calculate your loan amount. Or, enter in the loan amount and we will calculate your monthly payment!
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