SHOULD YOU REFINANCE?



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Thinking about refinancing your home, but not sure what the process involves and whether or not you should take the leap? Obtaining a new mortgage to replace the original enables a borrower to receive a more favorable interest term and rate. For a borrower with good credit, refinancing can be a great way to convert a variable loan rate to a fixed-rate loan and to get a reduced interest rate. Here, some information on why homeowners typically choose this option:

A lower monthly payment.
If you plan on living in your home for several years, it might make sense to pay a point or two to decrease your overall payment and interest rate. The costs will be paid for by any monthly savings gained. Meanwhile, if you’re planning to move in the near future, you might not be in the home long enough to recover from a mortgage refinance and the associated costs.

Move from a fixed to adjustable mortgage.
Adjustable-rate mortgages can provide a lower monthly payment initially. They also are ideal if you don’t plan to own your home for more than a few years. If you do plan to make your home permanent, you might opt to switch from an adjustable rate to a 10-, 15- or 30-year fixed-rate mortgage. Adjustable-rate mortgage interest rates might be lower, but with a fixed-rate mortgage, you will know exactly what your payment is every month.

Avoid balloon payments.
Balloon programs are a good way to lower your initial monthly payments and rates. However, at the end of the fixed-rate term (typically five or seven years), the entire mortgage balance will be due if you still own your property. A balloon program lets borrowers easily move to a new fixed- or adjustable-rate mortgage.

Do away with Private Mortgage Insurance (PMI).
Low or zero down payment options can allow you to purchase a home with less than 20 percent down. This usually requires PMI, which is designed to protect lenders from borrowers with a loan default risk. As the balance on your home decreases, and the value of the home increases, you might be able to cancel your PMI with a mortgage refinance loan.

Cash out a portion of the home’s equity.
Since most homes usually increase in value, they are a great resource for extra income. Increased value can give you the chance to use that additional cash to purchase vacation property or a new car, pay tuition, make home improvements, pay off credit cards or take a vacation.