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Wondering About Refinancing Your Mortgage?
Posted By Ron On April 18, 2011 @ 1:00 AM In Mortgages,Personal Finance,Taxes | Comments Disabled
I’ve been through several mortgage  refinances. My last refinance was to replace my adjustable rate loan with a 30 year loan and along the way, I was able to reduce my interest rate and payment. Refinancing is basically just the process of replacing an existing mortgage  with a new one.
One quick rule of thumb recommended by experts in deciding whether to refinance is the 2 percent rule. It says that refinancing is worthwhile only if you can get a new loan with a rate at least 2 percent lower than your current rate. Of course, if you’re contemplating a mortgage  refinance to change your loan type, the interest rate may not be as large a factor.
Though the 2% rule is handy, it’s not definitive. A more thorough approach is to calculate how long it would take for the monthly after-tax savings that you’d receive from a new loan to cover your refinancing costs (typically equivalent to the closing costs of your original loan). To make that calculation:
By the 2 percent rule, you should not refinance in this situation, since the difference between the rates of the current loan and the new one is only 1.5 percent. But the more precise after-tax savings calculation shows that if you intend to keep the new loan for more than 22 months, it does make sense to refinance.
Thought there are some significant tax advantages associated with refinancing your home , unlike closing costs on your original mortgage, you can’t write off refinancing costs on your taxes all at once. You can still deduct these costs, but your deductions must be spread out over the life of the loan, which means you’ll reap those tax savings only gradually and in small amounts.
Under the right circumstances, refinancing your mortgage can make a lot of financial sense, especially if you use a mortgage lender with low interest rates and you can get a lower interest rate.
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