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When to Refinance. Another sign that you should be refinancing is if you want to change the terms on your mortgage. One example of this is the length of the mortgage, which we touched on before. You can get a longer mortgage to make monthly payments smaller or a shorter mortgage to reduce overall costs.
When you refinance your mortgage to a lower interest rate, the amount you pay in interest will go down. Moreover, if the term of your new mortgage matches how many years remained on your original mortgage, the amount you pay toward principal will go up.
Consider that average interest rates on fixed-rate mortgages have ranged from less than 7 percent in the late 1990s to more than 15 percent in the early 1980s, and you can see that refinancing can result in significant savings for the homeowner. A general rule of thumb is to refinance when interest rates drop 2 percentage points or more.
Comparing My Refinance Rate to My Old Mortgage Using the ballpark estimates I had received from various lenders, I put the numbers into a spreadsheet and did the math. Even at this modest 0.5% rate drop, switching from one 30 year mortgage to another would drop my monthly payment by $69.
What to Know Before You Refinance Some mortgage lenders. to take advantage of different ways to improve your credit score before refinancing your mortgage. Below, we list some steps you can take to.
Refinancing a mortgage can sometimes save you a lot of money, but it’s not always your best move. The new loan pays off the first one. The main reason most folks refinance a mortgage is to take advantage of a lower interest rate and thereby end up with smaller monthly payments. But that’s not the only possible reason.
Once you know the costs of your various options, you still have to answer the question: Should you refinance? No one really knows when interest rates will rise , or how fast, says mortgage expert.
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How do I know if I should refinance my mortgage? I owe about $130,000 on a 30-year mortgage that I took out in 2002. It has a fixed interest rate of 5.85 percent.