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Five Popular Reasons for Refinancing Your Mortgage

by Gabriel  Traverso
Mortgage Directory Columnist

There are a number of reasons for refinancing, but not all of them apply to you.

Reasons for Refinancing

Some of the most common reasons today's homeowners are refinancing their mortgage are:
  • To get a lower interest rate and lower monthly mortgage payments
  • To shorten the term of the home loan
  • To get a home equity loan for debt consolidation or home improvements
  • To get out of a mortgage that is no longer afford, such as an adjustable rate mortgage (ARM)

Should I Refinance My Mortgage?

For years financial advisors have recommended waiting until mortgage rates drop 2 percent below your current interest rate before refinancing, but that's not always the right answer. If you still have a large principal, it could make sense to refinance to a rate of even just one percent lower. You have to do the math to decide whether the savings make sense. However, if you have an ARM and it's about to adjust upward, it should be a no-brainer to start looking into your refinance options.

Debt Consolidation and Home Equity Loans

Refinancing your mortgage in order to consolidate debt is a tricky road to travel and you want to consider all your options. Transferring a short-term unsecured debt to a mortgage isn't always the best course of action. However, if at the same time you can get a lower rate on your mortgage, it might just be an ideal solution to kill two birds with one stone.

If you want to make improvements around the house or have been toying with the idea of a remodel, then a home equity loan is an ideal solution. Again, weigh your options. If you have a great rate on your mortgage and won't save significantly through refinancing, then look into a home equity loan. If rates have dropped a good deal, look at your cash-out refinance options.

About the Author
Gabriel Traverso is a freelance writer, independent musician, and artist. He resides in Reno, NV.

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