Buying
a Home
Step 9: Fun with Refinancing
If interest rates have dropped since you took
out your mortgage, you may
want to consider refinancing your home - that
is, getting a new mortgage with
a better interest rate to replace
the old one. As a general rule, if you can cut
your rate by
2% or more, it is worth investigating.
Depending on how much the new bank charges in
closing costs
and how long you plan to stay
in your home, you could end up saving a significant
amount of money
this way. Refinancing may slash
$100 to $300 or more off your monthly payment.
Interest on
the entire amount borrowed
is tax-deductible, unless you increase the amount
of the loan by
more than $100,000. Consult
your tax advisor to discuss the particulars of
your situation.
You do not have to refinance
with the same mortgage broker
that you originally used.
It's wise to try them first, as they may
offer you an attractive package
in order to keep your business,
but shop around and compare rates
as you did the first time around.
Costs vs. Benefits
To make sure you're going to
save money by refinancing,
take all the costs into consideration.
Closing
Costs
Remember these? You will
have to pay them again
when you refinance. Depending
on how high they are, they
may overshadow the savings
you will get from your new interest rate
and it may not be worth it
to refinance.
Pre-payment
Penalties
Your current mortgage may
have a significant penalty
for pre-payment that could
overshadow the savings
that result from refinancing. Check your
mortgage
papers. If a pre-payment
penalty exists, it will be
in your agreement.
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