Should I Refinance? Debt consolidation is one reason many people refinance.

Refinancing - what you must know

Refinancing is the process of paying off your existing mortgage and replacing it with a new mortgage, done with the goal of improving your financial status.

    Why refinance?

    A refinance should help you save money in the short or long term period. If it won’t do that, you shouldn’t refinance. Reasons to refinance include:

  • Rates have dropped. You can lock in a lower rate resulting in a lower monthly payment.*
  • Shorter term. Refinancing from a 30 or 40-year term down to a 10 or 15-year term will help you pay off your mortgage much more quickly. In addition, rates are often lower on shorter term mortgages.
  • Debt consolidation. Pay off other bills and loans by rolling your other expenses into one mortgage loan.

How does refinancing work?

A refinance is essentially a brand new mortgage that replaces the one you have. Just as when you originally bought your home, your refinanced mortgage charges fees including a new appraisal, title search and insurance and closing costs. According to experts, you should not refinance your mortgage if you cannot recoup the fees within two years.

    Facts you must know when you refinance

  • You must have equity in your home to refinance in today’s more conservative underwriting environment. 20% equity is ideal, but 5% is usually acceptable.
  • Know if you have a prepayment penalty on your existing mortgage before you refinance. Those penalties are severe and costly. Most of the time, if you have a prepayment penalty, you should not refinance your mortgage.
  • If your home was recently listed for sale, you may not qualify to refinance. Generally, a lender feels more comfortable that you won’t be selling the house and paying off this new mortgage immediately if the listing date at least six months prior to the refinance.

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*By refinancing your existing loan, your total finance charges may be higher over the life of the loan.