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Follow These Rules before Refinancing Your Mortgage

Refinancing your mortgage is a smart move if done right.  If done wrong, however, you could lose money when you have to sell.

      1. Pay Attention to Half Percents

With the current trend of low interest rates, it no longer makes sense to look to refinance when you can save 1%.  In the current market, it makes sense to refinance when you can save a half percent.  However, you shouldn’t refinance more than 3 or 4 times during you loan.

2. Drop Mortgage Insurance

Many loans from the Federal Housing Administration require you to have mortgage insurance for the life of your loan.  Non-governmental loans may require you to have private mortgage insurance until you’ve reached 20% equity in your home.  Refinancing your FHA mortgage into another mortgage can help remove any premium costs. 

      3. Don’t Refinance for a Same-Length Loan

If you have a 30-year mortgage and you refinance after a few years for another 30-year mortgage, you may save money with a monthly rate reduction, but you will also be extending the life of your loan a few years.  Paying a little extra on your new loan each month will help you build equity faster and reduce the total amount of interest you pay.

4. Leverage Your Financial Power

If your finances have improved since receiving your first mortgage, consider refinancing for a shorter mortgage.  While you will have to pay more monthly, you will own your home faster and could save thousands in interest.

      5. Know When You’ll Recoup Costs

With refinancing, there are closing costs.  Calculate how long it will take you to recoup those costs and start saving money again.  If you can recoup these costs within 5 years, or better yet 3, you’ve made a good deal.  If you are considering selling, make sure that you won’t be selling until after that time frame or you will end up losing money.  

      6. Shop Around

Different lenders have different rates.  Even though rates are currently low, that doesn’t mean you’ll find the same ones everywhere.  

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