Archive for Sunday, September 8, 2002

The Motley Fool

September 8, 2002

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Big bucks by refinancing

Many Americans are saving tens of thousands of dollars fairly easily, and you might be able to join them by refinancing your mortgage. With mortgage interest rates near 30-year lows, you owe it to yourself to consider whether refinancing makes sense for you.

Refinancing involves taking out a new mortgage on your home at a lower interest rate, decreasing the amount of your monthly payments sometimes by as much as several hundred dollars. You also can increase the amount of the loan for such purposes as paying off credit card debt or making home improvements. (But beware: Your once-unsecured debt is now secured with your home as collateral.) Alternatively, lower your rate, keep payments the same or even a little higher, and get a 15-year loan instead of 30-year one. You'll enjoy massive interest savings that way.

Be sure to assess the myriad mortgage costs involved, such as the origination fee, discount points, the appraisal, the credit report, processing, title insurance and the escrow fee. Next, check out available loans and interest rates. Consider what "points," if any, you might have to pay. A point, equal to 1 percent of the value of your loan, is paid up front in order to lower the interest rate. Make sure you plan to be in the house long enough for the reduced monthly payments to compensate for the closing costs of the new loan. That can take zero to three or more years.

If you can get a new mortgage at a rate 1 or 1/2 a percentage point lower than your current mortgage, you can reap enormous interest savings over 15 to 30 years, depending on how much you borrow. For example, $100,000 borrowed at 7 percent instead of 8 percent for 30 years will save about $25,000 over the length of the loan. And some 30-year fixed mortgage rates are hovering near 6 percent!

Learn much more about home financing at www.quicken.com/mortgage/refinance and www.fool.com/homecenter.

Ask your current mortgage lender about refinancing, too you might get a good deal without having to jump through too many hoops, since the lender already knows you.

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