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When Is The Right Time To Refinance Your Home?


Posted: January 23, 2018 by Rebekah Holten

Refinancing your home can be done for multiple reasons. Whether you’re looking to save money, replacing an adjustable-rate with a fixed-rate, or eliminate FHA mortgage insurance, refinancing can be a good choice. Knowing when the time is right to consider refinancing is most important.

There are two major types of refinancing. Cash-out refinancing allows you to take out a new mortgage for more than what you owe. The difference is taken in cash and you can utilize it to pay of an existing debt. Rate-and-term refinancing allows you to save money. Usually, the remaining balance on your loan is what’s refinanced to obtain a lower interest rate and a term that is more affordable for your situation.

Deciding whether a refinance makes sense for you is best done with the following scenarios.

1.      You want to check for the break-even point. This is typically the time it will take for the mortgage refinance to pay for itself. With the total closing costs and monthly savings, you can determine if refinancing is the best route to take. If you plan to own the house for less than the break-even time, refinancing wouldn’t be your best bet. However, if you intend on staying in your home for the long term, well past your break-even point, then refinancing is definitely something to look into.

2.      Cash-out refinances are used to pay down debt. Using this type of refinance can be both good and bad. The upside is it can be used to pay off credit card debt. This will result in reducing the interest rate on the debt. However, transferring the credit card balance to your mortgage may also mean you’re paying more interest because of taking 30 years to pay off the transferred balance.

Remember: refinancing is done to allow the borrower to obtain a better interest term and rate. This is not a simple decision. It’s best to refinance when you have equity in your home which is the difference between the amount owed and the worth of the home. You must also consider the length of time in which you’ll be in the home, which type of refinancing you plan on utilizing in this situation and whether it is best for you in the long run. 

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