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Top Five Reasons Why a Mortgage Refinance Makes Sense

by Gabriel  Traverso
Mortgage Directory Columnist

Refinancing your mortgage means applying for a new home loan to pay off the one you already have. Why might this make sense? Well, depending on your situation there are a number of reasons why applying for a mortgage refinance could be the right thing to do.

Mortgage Refinancing Benefits

When you first applied for your home loan, you had to go through a mountain of paperwork, sign your name about fifty times, and dig up a tremendous amount of documentation. It was so much trouble the first time, why put yourself through it all again? Here are a few reasons worth your consideration:
  1. Lower your interest rate. If you have a high interest mortgage such as an adjustable rate mortgage (ARM), you are probably watching your payments increase. Refinancing to a fixed-rate loan at today's mortgage interest rates can lower your payments and save you a great deal of money.
  2. Lower your monthly payment. Even if you don't have a high interest rate on your current mortgage, if you have paid into your loan for a while you can lower your payment by applying for another 30-year loan. Though this does extend your debt it can help lower your monthly payments.
  3. Shorten the duration of your loan. Maybe you are ten years into a 30-year mortgage and can now afford higher monthly payments. By refinancing into a 15-year fixed-rate loan, you can shorten the amount of time it takes to pay off your mortgage.
  4. Tap into your home equity for cash. Perhaps you've been dreaming about making some home improvements but still can't quite afford the project. Or maybe you would like to pay for a better college for your children than you can currently afford. If you have equity in your home, cash-out refinancing allows you to take some of the equity out to use for anything you want--even a long-awaited vacation.
  5. Eliminate private mortgage insurance (PMI). If you purchased your home, like many consumers, with less than 20% down, you are probably paying private mortgage insurance. With some loans, this insurance can be cancelled when you reach 20% equity in the home. In other cases you might have to refinance to another mortgage in order to remove the PMI.
About the Author
Gabriel Traverso is a freelance writer, independent musician, and artist. He resides in Reno, NV.

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