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How to determine if you should refinance. Traditionally, the decision on whether or not to refinance has meant balancing the savings of a lower monthly payment against the costs of refinancing. But in recent years, lenders have introduced "no cost" and low-cost refinancing packages that minimize or completely eliminate the out-of-pocket expenses of refinancing. These refinancing packages many times will compensate with a slightly higher interest rate, or by including some of the costs in the amount that is financed. With traditional refinancing, the most often cited rule-of-thumb is that the interest rate for your new mortgage must be about 2 percentage points below the rate of your current mortgage for refinancing to make sense. However, with the newer low- and no-cost refinancing programs, it can be worth your while to refinance to obtain a smaller reduction in interest rates. How long you expect to stay in your home is also a factor to consider. If you'll be moving in a few years, the month-to-month savings may never add up to the costs that are involved in a refinancing.
Find out what the total cost of the refinance is, then figure out how much you will save every month by performing a cost analysis or have a mortgage professional prepare one for you. Divide the total cost by the monthly savings to get the number of months you will have to stay in the property to break-even on your refinancing costs. Example: if your refinance costs $2000 and you save $50/month your break-even is 2000/50 = 40 months.
The loan professional that has made this information available to you specializes in assisting those individuals with obtaining a home loan whether for purchase or refinance. Your loan professional in most cases can advice you on the best approach and help you with your specific loan requirements.
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