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| Refinancing -- What You Stand to Gain Low interest rates can create a refinancing frenzy in the marketplace, but consider the details of your unique situation to determine if a refinance makes sense for you. Even a small percentage of a rate drop means big savings based on higher loan amounts Instead of listening to the "2% rule" about how much of a percentage change in interest rates you should look for before you refinance, look at how much money you'll stand to save. A 1% rate reduction is a lot more meaningful if you have a $500,000 mortgage rather than one that's $100,000. Can you refinance into a shorter term? If you have 20 years left on your mortgage and you refinance into a new 30-year mortgage, you may not save money over the long run, even with a lower rate. However, if you can afford to refinance that 20-year mortgage into a 15-year mortgage, the combination of a lower interest rate and a shorter term will substantially reduce the total amount of interest you'll pay before you own the house free and clear. What You Stand To Gain Done properly, a refinance can have both immediate and lasting benefits. Get a better loan. Refinancing can provide an opportunity to correct a mistake you made in taking out your existing mortgage or simply make a good mortgage even better. Either way, you'll increase your short- and long-term financial security and increase the odds that hard times won't put you at risk of losing your home. Increase your long-term net worth. With the savings from refinancing your mortgage, you'll be spending less on interest. That's money you can put away for retirement or use toward another long-term financial goal. Increase short-term cash flow. If your refinance lowers your monthly payment, you'll have more money to work with on a month-to-month basis. This can reduce the day-to-day financial pressure on your household and create opportunities to invest elsewhere. |
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