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Top 5 Reasons To Refinance in 2010

04/05/2010

Refinancing your mortgage to lower your monthly payment can be a smart financial move. But it's not the only reason to consider a mortgage refinance loan. Here's a look at 5 reasons why refinancing may make sense:

5. Lower Your Monthly Payment
Since there's usually a cost involved in refinancing, the first thing to do before considering this is determine how long you plan to remain in your current home. If it's long-term, it may be worth paying one or two points in exchange for the lowest mortgage rates, and consequently a lower mortgage payment each month. If you plan on moving soon, the savings you generate from lower monthly payments might not be enough to recoup the costs of refinancing.

4. Switch from an Adjustable to a Fixed Rate Mortgage
An adjustable rate mortgage offers many benefits including a low initial interest rate. It's a good option if you plan to move within a few years since the rate won't increase very much--if at all--during that period. But if you don't plan to move soon, and you're nearing the time when your mortgage is set to adjust, consider refinancing into a fixed rate mortgage. It'll probably have a higher rate of interest, but the rate is fixed for the entire loan term, whether that's 15 years, 20 or 30 and monthly payments will never change.

3. Pop that Balloon Mortgage
A balloon mortgage is similar to an adjustable rate mortgage; both begin with a very low interest rate that translates into low monthly payments. However, with a balloon mortgage, you're required to make a large lump sum payment at the end of the term, which typically is 5 or 7 years, provided you are still the owner of the property. Refinancing into a fixed or adjustable rate mortgage gets you out of the balloon program.

2. Get Cash from your Home's Equity
If the value of your home has increased, a cash-out refinance mortgage lets you tap into the equity. With the money you can pay off bills, send a child to college, make home repairs and improvements, and more. The process is simple and tax-deductible.

1. Eliminate PMI
Until you have the equivalent of a 20% down payment or equity in your home, you'll likely pay Private Mortgage Insurance (PMI). If you're home's value has increased and you now have enough equity, a mortgage refinance loan rids you of the need to continue paying PMI.

Each reason has advantages and disadvantages which should be considered before making the decision to refinance.

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