Deciding when a home refi loan is right for you is an important decision that demands careful research and planning. Some of the reasons you may consider a home refi loan include:
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Lower your Interest Rate
You may want to consider a home refi loan if interest rates are currently lower than your existing mortgage interest rate. Lowering your interest rate can save you thousands of dollars since the amount of interest you pay usually directly impacts your monthly financial obligation. However, you will need to weigh your potential savings against the closing costs to determine if refinancing will provide you with the financial benefits you seek.
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Reduce the Length of your Mortgage
Shorter term mortgages generally carry with them lower interest rates, but higher monthly payments. Depending on your circumstances, it may be worth it to reduce the term of your mortgage since you have the potential to obtain significant savings in the long term.
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Replace an ARM with a FRM
If you originally financed your home with an adjustable-rate mortgage, it may be a good idea to consider a fixed-rate mortgage if you anticipate a hike in your monthly mortgage payments.
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Take Advantage of the Equity in your Home
You can utilize the equity in your home when you refinance to get money to pay off debt, invest in home improvements or finance your child’s college education.
When considering a home loan refi, be aware of prepayment penalties and consider how long you plan on staying in your home before you decide to refinance. Even if your monthly payments are lowered, you may not break even on a home loan refi if you don’t stay in your home long enough to reap the benefits.
Additionally, watch out for predatory lenders who are more interested in lining their own pockets than helping you obtain your hard-earned refinancing savings.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
