Justifying a Refinance


Refinancing is most often motivated by lower interest rates, which can bring the dual benefit of lower mortgage payments and lower interest costs over time. But there are many other legitimate motivations. There is no “one-size-fits-all” solution, but here are a few reasons why you might want to consider a refinance.

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Lower Payments

When rates fall, it’s always tempting to refinance. A common rule of thumb is that a 2% drop in rates will make it worthwhile. But this is not universal. For a homeowner with a $300,000 balance, a rate reduction of even one percent can lower their monthly payments by a couple hundred dollars while cutting long-term interest expenses by hundreds of thousands.

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A Quicker Payoff

This is often a worthy goal if you can afford somewhat higher payments. Replace a 30-year-term with 15 years and you’ll be out of debt sooner. Choose the ease of a 30-year term and payments become easier to manage, but go down a lot less thanyou might expect.

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Lower Interest Costs

Locking in a better fixed rate is great, but it is not the only way to lower interest bills. Adjustable Rate Mortgages generally offer lower rates in the early years followed by higher rates later. If you plan to be in the house for just a few years, an ARM may make a lot of sense.

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Cash Out

Borrowers may use their home’s equity to pay for major purchases, make home improvements, and even consolidate high-interest debt at today’s historically low rates.

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