How to decide if it's time to refinance



It seems like people are doing it all the time. It's easy to start wondering, "Am I missing out on something here." There are good reasons to refinance, let me share them with you.

There are four main reasons why people refinance their home loan: to nab a lower interest rate, to move to a fixed rate from an adjustable, to take out equity, and something more than half of us do -- some more than once -- divorce.

People tend to brag about interest rates at cocktail parties. Don't get caught up in the "he with the lower interest rate wins" game. Each mortgage profile is different. If you are considering refinancing because of dropping interest rates, check out the Break-Even calculator on This tool helps you evaluate whether refinancing makes sense for you by comparing the details of the loan with how long you plan to be in your house.

Looking down the road at your adjustable-rate mortgage? By refinancing into a fixed-rate mortgage, you can eliminate the uncertainty of what your payments might become.

Say you have some equity in your home, and you want to get the cash out -- aptly named a cash-out refinance. While it is probably not a good idea to pull equity out of your house to take that dream vacation, there are valid reasons that you would want to take the cash.

As a one-time debt consolidation for an overall lower interest rate. This could really help if you are having trouble meeting monthly expenses.

To get cash to pay for a home improvement to your house. This can make sense particularly if the improvement will add monetary value to your house.

Insider tip:
If your current first mortgage is low and you want to tap the equity, investigate a home equity loan instead of a cash-out refinance. You might get the cash you need at a low rate without having to pay closing costs.

Divorce is also one of the most common reasons that people refinance. Most divorce settlements stipulate that either the house must be sold, or the person wanting to keep the property must buy out the soon-to-be ex-spouse's share.

Insider tip:

There is another, little-known option. You simply ask your lender to remove the former spouse's name, leaving the mortgage in your name only. It's called a "release of liability." If they agree, you will save the money you would have spent on refinancing. It is not an easy "yes" from lenders, but it can't hurt to ask.

So forget the "refinancing gossip" you hear. Interest rate, equity, suitable loan and divorce. These are the valid reasons to explore your refinancing options.


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