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Refinancing Your Mortgage

May 29, 2008  |  Difficulty: Easy

Path to mortage
What does refinancing mean to you? Isn’t refinancing just a technical term that simply means to “renew” your mortgage? Doesn’t the lender call the borrower and let the borrower know that it is time to renew the terms of the loan? They negotiate some things over the phone, papers are made and then the borrower gives the contract a brief look over. After that, bam! Refinancing is done. But is this the way it really works?

Not so much. Refinancing your mortgage is a way to grab some of the equity that has built up over the time of your ownership.

This is important, because many homeowners will need some of that extra cash for some reason or another. A lot of homeowners want to use the equity that is increasing on the property. However, to do this, the homeowner will need to renegotiate the mortgage terms. Often, the new mortgage will have with a more expensive price tag.

In other cases, refinancing is a needed option to lower interest rates. It is very likely that your credit score will be higher at the time of refinancing then when you first bought the property. Making steady payments on your mortgage loan will cause this financial boost. This new and improved credit rating will work in your favor to get a lower rate when refinancing. Even if you have to violate penalty clauses that are outlined in your contract, overtime, you may save much more money with the lower interest rate.

Debt consolidation is another good reason to refinance your mortgage. There may be clauses and penalties with the other reasons, but with debt consolidation, you will, without a doubt, benefit from this choice. When you are holding extra debt, such as your credit card debt, refinancing can help to get you back on the right financial track, helping you handle your debt situation.

No matter what, it is always best to thoroughly evaluate whether refinancing is best for you. Look at the penalties, as well as the benefits.

A major rule of thumb is to make sure that your interest rate is being lowered when you decide to refinance. Keep this in mind even when you are refinancing to revamp your home. Refinancing may not be the best choice. Some home renovation stores offer no interest deals when you pay for your expenses with their sponsored credit card. There are deals that offer no interest for up to 6 months. This might benefit you greatly. But before deciding to do this, evaluate if you will be able to pay back most or the entire loan as soon as the 6 months are up. If you cannot, you will then be bombarded with much higher interest rates, even higher than the rates you would receive if you refinanced.

Whatever you do, find the cheapest option that will give you the best interest rate deal.

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