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IS REFINANCING ALWAYS A GOOD IDEA?
Mortgage rates are lower than they have ever been. Refinancing will help you save money nine times out of ten. However, you need to be aware about when refinancing does not make sense. If you refinance your mortgage, and you fall into any one of the categorizes below, you will lose money, not save.

 

Are you looking to sell your home soon?
If you are looking to sell your home in a few years, refinancing does not make sense. Yes, you will save a few hundred dollars every month if you refinance. However, you need to take into consideration that the lending fee closing costs can be a few thousand dollars. It will take a few years for the savings from refinancing to surpass the cost of the lender.

Has your credit score declined?
Suppose your credit rating was perfect when you first purchased your home. Over the past few years, you have experienced some unforeseen financial emergencies, like a job loss resulting in not paying credit card bills on time. As a result, your credit score has declined significantly, hurting your chances of achieving a lower a lower mortgage rate through refinancing. Obviously, if you can not achieve a lower interest rate than your current mortgage, refinancing does not make sense at all.

Looking to save on interest? Having difficulties paying your current mortgage?
Are you looking to save money in interest by refinancing a 30 year mortgage into a 20 year mortgage. Even though you will be saving money over the entire of the loan, however as a result of the increase in term, you are going to be looking at a monthly payment that is higher than your previous mortgage. So, unless you are anticipating an increase in income, this type of refinancing does not make sense.

Have you already refinanced and received cash-out? Do you need more money?
Have you recently refinanced and got some cash-out of the equity of your home for home improvements. Do you need to refinance again to finish the job that you underestimated in cost. If refinancing and getting cash-out again leaves you borrowing more than 80% of your home's current value, then you will be required to take out PMI (private mortgage insurance).

PMI can cost you an additional $100 month. So, you may want to consider applying for a home equity loan instead of refinancing if you fall into this category.



        

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