Home Owners are Saving Thousands Through Mortgage Refinance by Using Three Tips by Rate State; A Lower Monthly Bill for Everyone is Now Possible

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Rate State, http://www.ratestate.com/, shows people the do’s and dont’s in mortgage refinancing.

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Rate State

People should determine the goal they wish to achieve before refinancing their homes.

Refinancing one’s mortgage isn’t always a good idea. In some cases, bringing monthly costs down just doesn’t make sense when factoring in hefty closing costs. Frequently refinancing therefore might not be a financially wise thing to do.

In an effort to expose the potential pitfalls, as well as the benefits of a mortgage refinance, Rate State has put together three tips on getting a mortgage refinance. Refinancing one’s home should only be done if it makes sense- long term and in the short term, and Rate State’s guide shows people how mortgage refinance should be considered.

The first thing Rate State recommends is that people determine the goal they wish to achieve before refinancing their homes. Refinancing doesn’t pay off the mortgage in any way; it is simply restructured around a different (hopefully lower) rate and term.

Reducing the interest rate is usually the intent of a mortgage refinance. This makes perfect sense to do, provided that the interest rate currently being paid is significantly higher than the original loan. Refinancing a home should be considered if the savings in monthly payments from a reduced interest rate will pay for the closing costs within two years. As closing costs are about $4000 for a $200,000 mortgage, the savings per month needs to be at least $170 per month to make a mortgage refinance financially worthwhile.

Another goal for those seeking mortgage refinance is debt consolidation. The same rules apply as above- the closing costs need to be weighed against monthly savings. In many cases, debt consolidation makes a great deal of sense; however, in certain cases, debt consolidation won’t translate into reduced savings. One of these cases is when a mortgage’s interest rate is higher than another debt. In this case, using a mortgage refinance as a debt consolidation tool doesn’t make financial sense. Also remember the debt is still there; paying off another form of debt at it’s current, higher rate quickly makes more sense in the long term versus consolidating at a lower rate, because the total interest costs accrued over the long term will be much higher.

Other goals might include simply making a mortgage easier to pay, with lower payments over a longer mortgage term. Usually, though, this comes at the expense of a higher total cost of interest in the longer term. However, the short term financial savings may be reason enough to justify a mortgage refinance.

The second tip Rate State gives is to count the cost of mortgage refinancing. Lowering interest rates while maintaining the current term is an excellent thing to do, as it means a lower long term cost in interest, but an increase in mortgage term means a higher total interest cost over the life of the mortgage; long term, an increase in the total loan term means more money lost on interest.

The third tip is a bit more difficult to do, but will drastically reduce the amount of money spent during the course of one’s loan: fixing one’s credit. Credit scores are the best way to determine a person’s fiscal responsibility and financial wellbeing. Reviewing one’s credit score is one of the easiest ways to make the right choices and meet financial goals. Simply put, the better the credit score, the lower the interest rate lenders are willing to give.

About Rate State:

Rate State provides a free, easy to use mortgage comparison tool that gives anyone the chance to reduce their monthly mortgage costs through refinancing. Check them out at http://www.ratestate.com/

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Keith Eneix
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