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Why Should I Refinance?

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The topmost reason why homeowners refinance their home equity loans is to cut down on costs every month.  However, many times people do not take the time to do some simple math which would reveal any savings to be had.  Many times there is no money to be saved in the first place, thus making refinancing a fruitless pursuit.

The bulk of savings that comes from home equity loan refinancing is based on the cost of the loan in conjunction with how long of a duration you will be living in your home.

The following sums up what you should consider when deciding to refinance:

Costs: Sit down and brainstorm all the possible costs you will incur.  They should include application fees, attorney & appraisal fees, underwriting, survey & recording fees, insurance fees, credit report fees, and most of all - title insurance.

Monthly Savings: This is simply calculating the difference between your current home equity loan monthly payment and the monthly payment you would be making after refinancing. 

Tax Cost: This is calculated by multiplying the sum of your state and federal taxes by your newly calculated monthly savings.

Net Savings: This is calculated by subtracting your new tax cost from your new monthly savings. 

Break-Even Point: This is the time in which your refinancing costs will be equaled by your savings.  To calculate it, divide your new total costs by your new net savings.  This value will reflect the number of months it will take to pay off the refinancing costs. 

Hidden costs: Remember to look for hidden costs on the home equity loan contract.   Sometimes they contain prepayment penalties, which need to be factored in as well. 

The only sure way of obtaining precise savings figures is to fill out a loan amortization schedule, which you can access on a mortgage calculators.  The other alternative is to sit down with a broker or lender who is willing to calculate the figures for you.

If you have decided to refinance, always try your current home equity loan lender first.  Oftentimes they have retention programs specializing in the offer of low rate or "no cost" refinancing packages. 

Do not stop shopping around for a low refinancing rate - even after your current lender offers you a nice package.  Start talking to people and collecting good references.  Use the offer of your current lender as a bargaining tool with other lenders.  Always drive a hard bargain - even if you have to walk out the door, remember that the lender will likely call you back to meet your demands.   

Home Equity Loan Refinancing Guide

Home Equity Loan Refinancing Economic Terms & Definitions
Home Equity Loan Refinancing Refinance Mortgage 101
Home Equity Loan Refinancing Refinance Options
Home Equity Loan Refinancing Refinancing? Save $$ On Title Insurance
Home Equity Loan Refinancing Should You Refinance?
Home Equity Loan Refinancing When to Refinance?
Home Equity Loan Refinancing Step 1: Making a Decision
Home Equity Loan Refinancing Step 2: Be Prepared
Home Equity Loan Refinancing Step 3: Loan Choices

 

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