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Refinancing General Things to Consider

Posted by  on Apr 16, 2009
 
Before you decide to refinance, there are a few things that you should consider. Whether you are looking into Missouri refinancing, Alaska refinancing, Virginia refinancing, or Utah refinancing, there are some basic questions that you have to ask yourself before finally deciding.

Refinancing normally takes between two and four weeks, depending on a few things, such as do you have a recent home appraisal? Are you in an area that appraisers can get to easily? Are there plenty of other comparable homes in your neighborhood? Usually, getting the home appraisal is what slows the process down the most. During refinancing booms, appraisers can be difficult to schedule.

How much money will I need to bring to the closing? A general guideline is that you'll need two percent of the home's purchase price for prepaid interest to cover the time between the date you close your loan and the date you make your first mortgage payment. Some states may also require pre-payment of property taxes. When refinancing however, your old mortgage will most likely have money in an escrow account that can cover these costs.

Are interest rates higher for a cash-out refinancing? The interest rate you pay on a cash-out refinance loan will generally be the same as what you pay on a mortgage where you don't take cash out. There may be an incremental fee associated with a cash-out refinance loan depending on the specific loan you choose and the loan-to-value ratio. Using the equity in your home to pay off other bills can be a smart thing. Consider taking some money out to pay off high-interest credit cards bills, auto loans and any other debts you have that have non-tax-deductible interest. Please consult your tax advisor to find out whether you may be able to deduct the interest on your new loan.

Should you refinance? Sometimes it makes sense to refinance . Sometimes it does not. It depends greatly on your individual situation and what your financial goals are. For instance, you may want to lower your interest rate and/or monthly payment, but you need to ask yourself some questions:
How long do you expect to be in your home?
How much equity do you have in your home?
Are you willing to pay points to get a lower rate?
Will having lower payments more than make up for the closing costs , fees and points if any?
Should I refinance from an adjustable rate to a fixed rate?

Generally, it's a good idea to get the lowest fixed rate possible, but you also have to consider your situation. If you're in the first year of an adjustable rate mortgage (ARM) and you plan on moving in three years, it probably doesn't make sense for you to refinance. However, if the rate on your ARM is about to adjust and you think the rate will go up, then it may make sense to get a long-term fixed-rate mortgage, especially if you don't plan on moving in the next seven years or so.

When should I lock in an interest rate?

Nobody can predict what interest rates will do. But historically, rates rise faster than they come down. Any near-future drop in interest rates may not be drastic enough to impact your monthly mortgage payment. Of course, every situation is different, so it's important to consider all of your options.
Should you pay points to get a lower rate? Paying points may or may not be your best option, depending on what you're doing. Points paid on a loan you've refinanced can be deducted from your taxes only in small increments. This means it could be several years before your lower rate makes up for the points you pay. However, if you're buying a home, points paid are a tax-deductible expense for that year. Please consult your tax advisor.

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