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Refinance Home Loan |
If you are a current homeowner who purchased a home many years ago, chances are good
that the interest rate you are paying is too high. Refinancing a home can be a tremendous
savings for many people. If you already own a home but have a high interest rate, you should
definitely consider talking to a lender about refinancing. Many of the older loans still reside
at 9% or higher! In fact, homes purchased back in the 1980s had interest rates up to 16%!
Today, you can refinance for rates anywhere from 5% to 7%. The savings would be incredible
and well worth the time. Even refinancing for 2% less than your current rate would save you
money on the monthly payment as well as the overall balance.
Start by checking with your mortgage company to see if they offer refinancing. Most do and
going with the company you already have is generally the best idea, especially if you have a
quality mortgage company where a good relationship has already been established.
However, there are always mortgage companies eager to take your business so be sure to
check them all out before making a final decision.
To give you an idea of what a reduction in interest would do, if you had a $100,000 house and
your monthly mortgage payment was $770 with an interest rate of 8.5%, by reducing your
interest rate just 1% to 7.5%, your payment would go down $70 per month. If you spread that
out over the life of the loan, and consider the reduction in overall interest, you would be
amazed. Now if you reduce the interest even more than 1%, you can see how much you would
save and why refinancing is worth it.
The first thing you want to do is look around and do some comparison shopping to see what
different lenders are offering for both interest rate and point reduction. From there, convert
each of the rates quoted based on a constant number of points. Next, you can take the
numbers and start talking directly with some of the lenders. When you go through this
conversion process, the best guideline to use is one that equates each point to a 1/4 of 1%
change in the new interest rate. That means you would have an 8% loan with zero points, or
the equation of 7.75% with one point.
The one thing you do need to keep in mind is that in most cases, when you refinance, you will
have to go through another closing, which means you will need money for the closing process
just as you did when you first purchased the home. Typically, it is not as much but you do want
to determine this when working with the lender. Another important thing is that if your home's
value is stable or increasing, a lower interest rate will help build the equity more. If your
home's value is decreasing, it may not be a good choice to refinance. Work with a qualified
lender to ensure you have all the best options.
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