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Is It Time to Refinance Your Mortgage ?
Refinancing is the process of paying off an existing loan with the proceeds from a new loan and using the same property as collateral . Usually , the interest rate on the new mortgage will be less than the old , the loan will cost less , and you will save money . However , refinancing isn ’ t appropriate for every homeowner . To know if it ’ s right for you , understand how these arrangements work .
THE BENEFITS
Many people choose to refinance because the reduced interest rate decreases their monthly mortgage payment , freeing up cash for other expenses . Every percentage point makes a difference . For example , if you refinanced a $ 200,000 , sevenpercent interest loan to a loan with six-percent interest , you ’ d have about $ 130 more in your pocket each month .
Another reason to refinance is to repay your mortgage faster , which is done by switching a long-term loan for one with a shorter term . With it , your mortgage payment would be higher , but you ’ d pay much less in interest over the life of the loan while building equity more quickly .
Cash-out refinancing is yet another attractive option . With this type of loan , you ’ d refinance your current mortgage plus take out some cash from the equity you ’ ve built up . The benefit ? Interest rates on the cashed-out portion are often lower than a home equity line of credit , home equity loan , or second mortgage .
THE COSTS To determine if refinancing will work in your favor , you ’ ve got to weigh the savings in interest against the fees associated with refinancing . A new loan means you ’ ll have to pay most of the same costs you paid the first time around . These may include points , appraisals , attorney ’ s fees , settlement costs ( such as fees for the loan application , title search , appraisal , loan origination , and credit check ), recording fees or transfer taxes , and sometimes a pre-payment penalty . All totaled , these costs can be high , and some lenders require at least a portion of them to be paid at the time of application .
THE TAX EFFECT One of the primary advantages of homeownership is the savings you receive on your income taxes — all that interest ( up to a million dollars for the first loan , and $ 100,000 for the second ) is tax deductible . Yet if you refinance the loan with a lower interest rate , you ’ ll have less interest to deduct . The effect may increase your tax payments and decrease the total savings you might obtain from a new , lower-interest mortgage .
If , however , you are in the final years of your mortgage , your payments probably consist of more principal and less interest . In that case , refinancing your mortgage with a longer-term loan will mean you ’ ll again pay more in interest — and increase your tax deduction .
FINDING THE BEST DEAL If you ’ re interested in refinancing , contact Century Heritage Federal Credit Union . With our low rates we may be able to help you save on your monthly mortgage payments throughout the life of the loan . You ’ ll also enjoy easy eligibility requirements and personalized service . Call , click or stop by today to get started !
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