Figure out whether lower rate will still save money after you factor in closing costs.
The Federal Reserve's decision to buy up mortgaged-backed securities has caused mortgage rates to fall and created new opportunities. But it has also raised a question: Should you refinance your mortgage now?
Before you rush to refi, take a few minutes to determine if it's the right move. Refinancing involves starting over and applying for a new loan. Whether homeowners deal with the original lender or a new one, the new loan will pay off the old loan and the borrower then makes payments according to new loan terms.
Good reasons to refinance include getting a lower interest rate, shortening the term of the mortgage to build equity faster, lowering monthly payments or switching from an adjustable rate to a fixed-rate mortgage.
Even if you just secured a new mortgage recently, it might make sense to refinance. Homeowners should consider refinancing if, in the long run, it will save them money.
First you have to find out the cost of getting the new loan. Refinancing can cost around 2 percent to 3 percent of the total loan amount. To determine if it will save you money, calculate your break-even point. You can calculate it by dividing the mortgage fees by the monthly savings. The answer you get tells you how many months it will take for you to break even. read more
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