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Deciding to Refinance a Home

As more and more people are trying to save money, different opportunities are being considered, one being the mortgage. One option, especially for people that have a higher interest rate than what is currently being offered, would be to refinance the home. However, prior to a homeowner making this decision, several factors need to be looked at and analyzed. After all, refinancing is a major decision, one that needs to be thought out so pros and cons could be weighed.

The option to refinance a home has been talked about a lot in the past year. People need to know that this option is viable but the decision needs to be taken seriously. For many people, a refinanced home loan is the perfect solution for but some people, the benefits are simply not strong enough to warrant the change. With a little information, homeowners would be able to make an educated decision.

Currently, mortgage loan interest rates are low. Because of this, if a homeowner has an existing mortgage loan with interest 2% or higher than what is being offered the option to refinance a home would make sense. However, to be sure refinancing is the right choice, the homeowner would need to look at the amount of time it would take for the money saved based on the lower interest rate to compensate for the costs associated with closing on the refinanced loan.

For instance, a $200,000 home mortgage loan taken out for 30 years at 9% creates a monthly payment around $1,900. However, if the homeowner were to refinance the home for the balance owed of $180,000 but now at 5% interest, the payment would drop to around $1,300. Obviously, with a calculation such as this, the savings would be substantial. Therefore, if the homeowner ended up paying $3,000 in closing and other associated costs to refinance the home, it would take five months to recoup those costs, meaning the refinance would be worth it.

Along with the interest rate to refinance a home, the homeowner also needs to understand the terms of the new loan. After all, the goal is to enjoy long-term savings not short-term gratification. In other words, if the refinanced loan meant the homeowner would actually pay a significant amount of money by the time the loan matured over what would have been due by not refinancing, then the decision to refinance the home would make no sense. Working with a solid financial or real estate lender would give the homeowner options from an expert that would make recommendations on a customer-by-customer basis.

Additionally, the amount of closing costs to include points is also a very important part of the decision-making process. Some people do not realize that when an existing home loan is refinanced, the process involves going through closing all over again. Just as the homeowner did when he or she first purchased the home, the same closing costs would apply. Therefore, to make sure the decision to refinance is the right one, the homeowner would need to look at the amount being paid out versus the amount saved to see if it balances.

Most importantly, while many people make the decision to refinance a home, it is imperative that the lender be trusted. In most cases, the homeowner would simply go to the lender of the original loan to discuss refinancing options but if this were not an option, it would be vital to choose a reputable lender, one that has experience with loans to refinance a home. That way, the homeowner would be offered the best loan options and at the lowest interest rate possible.

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