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How refinancing can improve your finances in the "new economy"

Posted by  on Nov 03, 2011
 

Low mortgage rates create refinancing opportunities. Check out today's mortgage rates and determine how much you may be able to save. Borrowers with good credit and enough home equity may qualify for cash-out refinancing; this can further increase monthly cash flow by consolidating multiple high cost debts into your mortgage payment.

Comparing mortgage costs

When comparing advertised mortgage rates and reviewing mortgage quotes, keep the following in mind.

Mortgage rates: Mortgage lenders and brokers advertise rock-bottom rates available to the few customers with excellent credit profiles and plenty of home equity. Contact multiple lenders and request mortgage quotes for someone with your credit scores and home equity.

Lender charges: Fees vary from one mortgage lender to another. Third-party charges like appraisal expenses, credit report fees, and title and escrow costs add to the cost of refinancing your mortgage.

Points: Mortgage lenders charge points for locking in the lowest mortgage rates. A point is one percent of the mortgage amount; one point on a $200,000 mortgage is $2,000. Pay attention to points in relation to advertised mortgage rates; some lenders promote bargain basement mortgage rates but charge higher lender fees and points.

Deducting closing cost from potential savings

Refinancing can save money on mortgage interest, but remember to deduct closing costs from potential savings. Mortgage calculators are useful for estimating differences in mortgage payments, but closing costs reduce your actual savings. Consider closing costs if you're thinking of refinancing and may be moving within a few years. Refinancing may not be worthwhile if you don't stay in your home long enough to recoup closing costs.

Extra cash out, or not?

Low mortgage rates make cash-out refinancing more affordable. Your decision to take extra cash depends on your home's value, how much equity you have and real estate market trends in your neighborhood. Taking cash out increases your mortgage debt and consequently increases your financial risk. If home values decline, you could owe more than your home is worth. Unemployment, illness or underemployment can make it difficult or impossible to pay your mortgage. These possibilities can increase the risk of defaulting on your mortgage.

Getting mortgage rate quotes from several lenders can help you find refinance mortgages best suited to your financial needs and priorities.

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