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Home Refinancing And If It Fits Your Situation....

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How do you calculate if refinancing will save you money? Well, many believe that the interest rate must pass the '2-percent rule'. In otherwords, the loan you want to refinance into should be lower than your current interest rate by 2 percent. While that may be the case in some situations, it is not set in stone.

A good way to see if refinancing will save you money (and how long it will take to do so) is to first calculate how much money you would save each month by refinancing to a new mortgage. Simply find the difference between the estimated cost of the new mortgage monthly payment and your current monthly mortgage payment.

Then, from the lender, find out the estimated closing costs. Yes, just like your first mortgage, refinancing entails paying up front closing costs to the lender... refinancing is basically just like getting a new mortgage and replacing your old mortgage with the new one. So you will have to pay closing costs, and you'll want to figure out how long it'll take to recover your closing costs by saving on your monthly mortgage.

To do that, simply divide your total estimated closing costs by how much you save per month on your mortgage. The number you get will be exactly the number of months it will take you to recover your closing costs! Then ask yourself if you'll still be in the home after all those months... or did you plan on moving to a new home?

Refinancing can be a good way to save money, but do NOT refinance if you are almost done paying your mortgage! This is a trick many lenders pull, and you do not want to be the one who is tricked! The reason being, when you refinance, you are basically getting a new mortgage with a new TERM. So your mortgage is STRETCHED out again, and years or decades are added back onto the time you are in debt.

The longer you are in debt, the more you pay in interest EXPONENTIALLY... finance 101. So do not get tricked into refinancing if you are almost done paying your loan, otherwise you will end up with another 10, 20, 30 or 40 years in debt, which is all the more time the lenders get to make money off of you, causing you to pay tens of thousands or hundreds of thousands of dollars EXTRA (yes, it IS that exponential!).
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